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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended March 31, 2002
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 1-9961
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TOYOTA MOTOR CREDIT CORPORATION
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(Exact name of registrant as specified in its charter)
California 95-3775816
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
19001 S. Western Avenue
Torrance, California 90509
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 468-1310
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Securities registered pursuant to section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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n/a n/a
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Securities registered pursuant to Section 12(g) of the Act: 5.49% Fixed Rate
Notes due 2003
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
As of April 30, 2002, the number of outstanding shares of capital stock, par
value $10,000 per share, of the registrant was 91,500, all of which shares were
held by Toyota Financial Services Americas Corporation.
-1-
PART I
ITEM 1. BUSINESS.
General
Toyota Motor Credit Corporation ("TMCC") was incorporated in California in 1982
as a wholly-owned subsidiary of Toyota Motor Sales, USA, Inc. ("TMS") and
commenced operations in 1983. TMS is an indirect wholly-owned subsidiary of
Toyota Motor Corporation ("TMC"). On October 1, 2000, ownership of TMCC was
transferred from TMS to Toyota Financial Services Americas Corporation
("TFSA"), a holding company wholly-owned by Toyota Financial Services
Corporation ("TFSC"). TFSC, in turn, is a wholly-owned subsidiary of TMC.
TFSC was incorporated in July 2000 and is headquartered in Nagoya, Japan. The
purpose of TFSC is to control and manage Toyota's finance operations worldwide.
TMCC provides retail and wholesale financing, retail leasing and certain other
financial products and services to authorized Toyota and Lexus vehicle dealers,
and to a lesser extent other domestic and import franchised dealers and their
customers in the United States (excluding Hawaii) and the Commonwealth of
Puerto Rico. Additionally, commencing in fiscal year 2003, TMCC will also
provide retail and wholesale financing to authorized Toyota vehicle dealers and
their customers in Mexico and Venezuela.
TMCC also provides retail, lease and wholesale financing to industrial and
other equipment dealers throughout the United States (excluding Hawaii) and
Puerto Rico. Financing is offered for various industrial and commercial
products such as forklifts, light and medium-duty trucks and electric
vehicles. Assets and liabilities related to transactions with industrial and
other equipment dealers are combined with the vehicle related business results
and are included in the appropriate financial data and financial statement
line items in the Consolidated Financial Statements as shown in Items 1,6 and
8 of this Form 10-K.
TMCC has eight wholly-owned subsidiaries, one of which is engaged in the
insurance business, two limited purpose subsidiaries formed primarily to
acquire and securitize retail finance receivables (one of which is a limited
liability company), one limited purpose subsidiary formed primarily to acquire
and securitize lease finance receivables, one subsidiary which provides retail
and wholesale financing and certain other financial services to authorized
Toyota and Lexus vehicle dealers and their customers in the Commonwealth of
Puerto Rico, two subsidiaries which will provide retail and wholesale financing
in Mexico, and one subsidiary which will provide retail and wholesale financing
in Venezuela. TMCC does business as Toyota Motor Credit Corporation and is
marketed under the brands of Toyota Financial Services ("TFS") and Lexus
Financial Services ("LFS"). TMCC and its wholly-owned subsidiaries are
collectively referred to as the "Company". TMCC also holds minority interests
in two subsidiaries of TFSC, Toyota Credit Argentina S.A. ("TCA") and Banco
Toyota Do Brasil ("BTB").
TCA provides retail and wholesale financing to authorized Toyota vehicle
dealers and their customers in Argentina. TMCC owns a 33% interest in TCA. In
February 2002, the Argentine government established measures to re-denominate
the entire Argentine economy into pesos and has permitted the peso to float
freely against other global currencies. This re-denomination policy adversely
affected TCA's financial condition and its ability to fully satisfy its
offshore dollar loans. Consequently, in the third quarter of fiscal 2002, TMCC
included a charge against income of $31 million to write-off its $5 million
investment in TCA and to establish a reserve of $26 million relating to TMCC's
$40 million guaranty of TCA's offshore outstanding debt. Prior to the write-
off of the TCA investment, TMCC's investment in TCA was accounted for using the
equity method. TMCC will continue to monitor the situation in Argentina.
Banco Toyota do Brasil ("BTB") provides retail and lease financing to
authorized Toyota vehicle dealers and their customers in Brazil. TMCC's 15%
investment in BTB is accounted for using the cost method.
-2-
Toyota Motor Sales
The Company's earnings are primarily impacted by the level of average earning
assets, comprised primarily of investments in finance receivables and operating
leases, earning asset yields as well as outstanding borrowings and the related
borrowing cost. The Company's business is substantially dependent upon the
sale of Toyota and Lexus vehicles in the United States. For the year ended
March 31, 2002, TMS sold approximately 1,673,000 automobiles and light trucks
in the United States (excluding Hawaii), of which approximately 896,000 were
manufactured in the United States; TMS exported approximately 38,000
automobiles. TMS' sales represented approximately 30% of TMC's worldwide unit
sales volume for the year ended March 31, 2002. For the year ended March 31,
2002, the six months ended March 31, 2001 and the fiscal years ended September
30, 2000 and 1999, Toyota and Lexus vehicles accounted for approximately 9.8%,
9.8%, 9.1% and 8.7%, respectively, of all retail automobile and light truck
unit sales volume in the United States. Changes in the volume of sales of
such vehicles resulting from governmental action, changes in consumer demand,
changes in pricing of imported units due to currency fluctuations, or other
events, could impact the level of finance and insurance operations of the
Company. To date, the level of the Company's operations has not been
restricted by the level of sales of Toyota and Lexus vehicles.
Credit Support Agreements
In connection with the creation of TFSC and the transfer of ownership of TMCC
from TMS to TFSA, a credit support agreement (the "TMC Credit Support
Agreement") has been entered into between TMC and TFSC, and a credit support
agreement (the "TFSC Credit Support Agreement") has been entered into between
TFSC and TMCC. Under the terms of the TMC Credit Support Agreement, TMC has
agreed to: 1) maintain 100% ownership of TFSC; 2) cause TFSC and its
subsidiaries to have a net worth of at least Japanese yen 10 million; and 3)
make sufficient funds available to TFSC so that TFSC will be able to (i)
service the obligations arising out of its own bonds, debentures, notes and
other investment securities and commercial paper and (ii) honor its obligations
incurred as a result of guarantees or credit support agreements that it has
extended. The agreement is not a guarantee by TMC of any securities or
obligations of TFSC.
Under the terms of the TFSC Credit Support Agreement, TFSC agreed to:
1) maintain 100% ownership of TMCC; 2) cause TMCC and its subsidiaries to have
a net worth of at least U.S. $100,000; and 3) make sufficient funds available
to TMCC so that TMCC will be able to service the obligations arising out of its
own bonds, debentures, notes and other investment securities and commercial
paper (collectively, "TMCC Securities"). The agreement is not a guarantee by
TFSC of any TMCC Securities or other obligations of TMCC. The TMC Credit
Support Agreement and the TFSC Credit Support Agreement are governed by, and
construed in accordance with, the laws of Japan.
During fiscal 2001, TMCC and TFSC entered into a credit support fee agreement
(the "Credit Support Fee Agreement"). The Credit Support Fee Agreement
provides that TMCC will pay to TFSC a semi-annual fee equal to 0.05% per annum
of the weighted average outstanding amount of TMCC's Securities entitled to
credit support.
Holders of TMCC Securities will have the right to claim directly against TFSC
and TMC to perform their respective obligations under the credit support
agreements by making a written claim together with a declaration to the effect
that the holder will have recourse to the rights given under the credit support
agreement. If TFSC and/or TMC receives such a claim from any holder of TMCC
Securities, TFSC and/or TMC shall indemnify, without any further action or
formality, the holder against any loss or damage resulting from the failure of
TFSC and/or TMC to perform any of their respective obligations under the credit
support agreements. The holder of TMCC Securities who made the claim may then
enforce the indemnity directly against TFSC and/or TMC.
-3-
TMC files periodic reports and other information with the Securities and
Exchange Commission ("SEC"), which can be read and copied at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's public reference
rooms in New York, New York and Chicago, Illinois. Copies of such material may
also be obtained by mail from the Public Reference Section of the SEC, at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549 at prescribed rates. You
may obtain information about the Public Reference Room by calling the SEC at
1-800-SEC-0330.
Repurchase Agreement
An Amended and Restated Repurchase Agreement was entered into between TMCC and
TMS effective as of October 1, 2000. This agreement states that TMCC is not
obligated to finance wholesale obligations from any TMS dealers or retail
obligations of any TMS customers. In addition, TMS will arrange for the
repurchase of new Toyota and Lexus vehicles financed at wholesale by TMCC at
the aggregate cost financed in the event of dealer default.
Shared Services Agreement
On October 1, 2000, TMS and TMCC entered into a Shared Services Agreement
covering certain technological and administrative services, such as information
systems support, facilities and corporate services, provided by each entity to
the other after the ownership of TMCC was transferred to TFSA.
Fiscal Year End Change
On June 6, 2000, the Executive Committee of the Board of Directors of TMCC
approved a change in TMCC's year-end from September 30 to March 31. This
change resulted in a six-month transition period from October 1, 2000 through
March 31, 2001 (the "transition period"). Results related to the transition
period are included in this Form 10-K Report.
Earning Assets
Substantially all of the Company's assets are originated throughout the United
States (excluding Hawaii) and principally sourced through Toyota and Lexus
dealers. In the United States, retail and lease assets are concentrated in
California (25%) and Texas (8%) as of March 31, 2002. The remainder of retail
and lease assets are relatively balanced throughout the remaining 47 serviced
states. As of March 31, 2002, approximately 2% of the Company's total earning
assets were originated in Puerto Rico. The assets related to the Company's
operations in Argentina, Mexico and Venezuela comprise less than 1% of total
earning assets as of March 31, 2002.
TMCC's wholesale and other dealer financing receivables, such as revolving
credit lines and real estate and working capital loans, arise from transactions
with individual dealers or national dealer groups. As of March 31, 2002,
wholesale and other dealer financing receivables totaled $3.7 billion or 12%
of total earning assets. Further, the 25 largest outstanding total dealer
receivables, aggregating approximately $1.5 billion, represent approximately
45% of total dealer receivables and 5% of total earning assets. All of these
receivables were current as of March 31, 2002.
-4-
Summary of Lease and Retail Earning Asset Activity
TMS has historically and continues to sponsor special lease and retail programs
by subsidizing below market lease and retail contract rates. A summary of
vehicle retail leasing and financing activity follows:
Year Six Months Years
Ended Ended Ended
March 31, March 31, September 30,
--------- ---------- --------------------------------------------
2002 2001 2000 1999 1998 1997
-------- -------- -------- -------- -------- --------
Contract volume:
Retail............... 643,000 209,000 412,000 333,000 282,000 247,000
Lease................ 192,000 102,000 240,000 249,000 312,000 262,000
------- ------- ------- ------- ------- -------
Total............. 835,000 311,000 652,000 582,000 594,000 509,000
======= ======= ======= ======= ======= =======
Average amount financed:
Retail............... $19,000 $18,000 $17,600 $17,600 $17,100 $16,500
Lease................ $30,000 $28,500 $25,500 $24,700 $24,600 $24,200
Outstanding portfolio at
period end ($Millions):
Retail............ $13,409 $9,034 $10,235 $8,916 $7,834 $5,866
Lease............. $13,553 $13,426 $13,084 $11,605 $11,872 $11,622
Number of accounts 1,512,000 1,344,000 1,426,000 1,234,000 1,193,000 1,061,000
The table above excludes amounts related to retail receivables and interests in
lease finance receivables sold through securitization transactions that qualify
as a sale for legal and accounting purposes, but includes receivables sold
through securitization transactions that qualify as a sale for legal but not
accounting purposes, under the Financial Accounting Standards Board Statement
No. 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities". TMCC continues to service all such
receivables. The outstanding balance of retail finance receivables sold
through securitizations which TMCC continues to service totaled $4.6 billion,
$4.1 billion, $1.9 billion and $1.0 billion at March 31, 2002 and 2001, and
September 2001 and 2000 respectively. The outstanding balance of interests in
lease finance receivables sold through securitizations which TMCC serviced
totaled $1.1 billion, $1.9 billion and $3.1 billion at March 31, 2001 and
September 2001 and 2000 respectively. There is no outstanding balance of
interests in lease finance receivables sold through securitizations as of
March 31, 2002.
Retail Financing
TMCC purchases primarily new and used vehicle and industrial equipment
installment contracts from Toyota, Lexus and, to a lesser extent, other
domestic and import franchised dealers. Certain of the used vehicle contracts
purchased by TMCC are "Certified" Toyota and Lexus used vehicle contracts.
Certified used vehicles are vehicles purchased by dealers, reconditioned and
certified to meet certain Toyota and Lexus standards, and sold or leased with
an extended warranty from the manufacturer. Installment contracts purchased
must first meet TMCC's credit standards. Thereafter TMCC retains
responsibility for contract collection and administration. TMCC acquires
security interests in the vehicles financed and generally can repossess
vehicles if customers fail to meet contract obligations. Substantially all of
TMCC's retail financings are non-recourse, which relieves the dealers from
financial responsibility in the event of repossession. TMCC requires retail
financing customers to carry fire, theft and collision insurance on financed
vehicles covering the interests of both TMCC and the customer. Retail
financing revenues contributed 26%, 22%, 23% and 20% to total financing
revenues for the fiscal year ended March 31, 2002, the transition period ended
March 31, 2001 and for fiscal years ended September 30, 2000 and 1999,
respectively.
-5-
TMCC's finance portfolio includes contracts with original terms ranging from
24 to 72 months; the average original contract term in TMCC's finance
portfolio was 57 months, 56 months, 56 months, 54 months and 53 months at
March 31, 2002, 2001 and 2000 and at September 30, 2000 and 1999,
respectively.
Retail Leasing
TMCC purchases primarily new vehicle and industrial and other equipment lease
contracts originated by Toyota and Lexus dealers. Lease contracts purchased
must first meet TMCC's credit standards after which TMCC assumes ownership of
the leased vehicles and industrial and other equipment and is generally
permitted to take possession of such vehicles and industrial equipment upon
lessee default. TMCC is responsible for contract collection and administration
during the lease period and for the unguaranteed residual value of the vehicle
or equipment at lease maturity if the vehicle or equipment is not purchased by
the lessee or dealer. Off-lease vehicles returned to TMCC are sold to dealers
through a network of auction sites located throughout the United States as well
as through the internet. Off-lease industrial and other equipment is sold
through authorized Toyota industrial equipment dealerships using a bidding
process. TMCC lease contracts require lessees to carry fire, theft, collision
and liability insurance on leased vehicles covering the interests of both TMCC
and the lessee. Leasing revenues contributed 69%, 71%, 72% and 76% to total
financing revenues for the fiscal year ended March 31, 2002, the transition
period ended March 31, 2001 and for fiscal years ended September 30, 2000 and
1999, respectively.
TMCC's lease portfolio includes contracts with original terms ranging from 12
to 60 months; the average original contract term in TMCC's lease portfolio was
45 months, 43 months, 41 months, 42 months and 40 months at March 31, 2002,
2001 and 2000 and at September 30, 2000 and 1999, respectively.
In October 1996, TMCC created Toyota Lease Trust, a Delaware business trust
(the "Titling Trust"), to act as lessor and to hold title to leased vehicles in
specified states in connection with a lease securitization program. TMCC acts
as the servicer for lease contracts purchased by the Titling Trust from Toyota
and Lexus dealers and services such lease contracts in the same manner as
contracts owned directly by TMCC. TMCC holds an undivided trust interest in
lease contracts owned by the Titling Trust, and such lease contracts are
included in TMCC's lease assets unless and until such time as the beneficial
interests in such contracts are transferred in a securitization transaction.
National Tiered Pricing Program
TMCC completed the national launch of a tiered pricing program for both retail
and lease vehicle contracts in the transition period ended March 31, 2001. The
objective of the program is to better match customer risk with contract rates
charged to allow profitable purchases of a wider range of risk levels.
Implementation of this program has contributed to increased average contract
yields and increased credit losses in connection with purchases of higher risk
contracts.
Wholesale Financing
TMCC provides wholesale financing primarily to qualified Toyota and Lexus
vehicle dealers and, to a lesser extent, other domestic and import franchised
dealers to finance inventories of new and used Toyota, Lexus and other vehicles
and industrial equipment. TMCC acquires security interests in vehicles
financed at wholesale, and such financings are generally backed by corporate
or individual guarantees from or on behalf of participating dealers. In the
event of dealer default, TMCC has the right to liquidate any assets acquired
and seek legal remedies pursuant to the guarantees. Pursuant to the Amended
and Restated Repurchase Agreement, TMS will arrange for the repurchase of new
Toyota and Lexus vehicles financed at wholesale by TMCC at the aggregate cost
financed in the event of dealer default.
-6-
A summary of vehicle wholesale financing activity follows:
Year Six Months Years
Ended Ended Ended
March 31, March 31, September 30,
--------- ---------- -----------------------------------------
2002 2001 2000 1999 1998 1997
-------- -------- -------- -------- -------- --------
Dealer financing volume
($Millions)................. $18,898 $8,608 $13,950 $11,093 $9,802 $8,573
Outstanding portfolio at
period end ($Millions)...... $2,413 $2,641 $1,435 $855 $757 $574
Average amount financed
per vehicle................. $23,742 $23,674 $22,534 $22,120 $21,562 $20,695
Other Dealer Financing
TMCC also extends term loans and revolving credit facilites to dealers for
business acquisitions, facilities refurbishment, real estate purchases and
working capital requirements. These loans are typically secured with liens on
real estate, vehicle inventory, and/or other dealership assets and usually
carry the personal or corporate guarantees of the dealers. In addition, TMCC
provides financing to various large publicly-held dealer organizations, also
called national dealer groups, often as part of a lending consortium for
wholesale and real estate financing, business acquisitions and working capital.
While the majority of these loans are secured, a portion remains unsecured.
Wholesale and other dealer financing revenues contributed 5%, 7%, 5% and 4% to
total financing revenues for the year ended March 31, 2002, the transition
period ended March 31, 2001 and for each of the fiscal years ended September
30, 2000 and 1999, respectively. Other dealer financing arrangements are
discussed further under Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Insurance
The principal activities of TMCC's insurance subsidiary, Toyota Motor Insurance
Services, Inc. ("TMIS"), include marketing, underwriting, claims administration
and providing certain insurance and contractual coverages to Toyota and Lexus
vehicle dealers and their customers. In addition, TMIS insures and reinsures
certain TMS and TMCC risks. Income before income taxes from insurance
operations contributed 16%, 41%, 22% and 13% to total income before income
taxes and cumulative effect of change in accounting principle for the year
ended March 31, 2002, the transition period ended March 31, 2001 and for each
of the fiscal years ended September 30, 2000 and 1999, respectively.
Servicing
TMCC services accounts included in its asset-backed securitization transactions
and is paid a servicing fee of 1% of the total principal balance of the
receivables for both retail and lease securitizations.
-7-
Field Operations-Restructuring
During the first quarter of fiscal 2001, TMCC announced plans to restructure
the Company's field operations. The branch offices of TMCC will be converted
to serve only dealer financing needs, which includes the purchasing of
contracts from dealers, financing inventories, loans to dealers for business
acquisitions, facilities refurbishment, real estate purchases and working
capital requirements, as well as consulting on finance and insurance
operations. The other functions that the branch offices currently cover, such
as customer service, collections, lease termination and administrative
functions for retail and lease contracts, will be handled by three regional
customer service centers. The regional center for the Western region was
opened in October 2001. The regional center for the Eastern region opened in
February 2002, and the transfer of certain functions from branches to the
regional center for the Midwest region is scheduled to continue during the
summer of 2002. The conversion of these activities is expected to be completed
in fiscal 2003. Restructuring charges and costs and their impact on
operations and credit losses are discussed under Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Funding
The Company supports growth in earning assets through funding obtained in the
capital markets as well as funds provided by operating activities. Capital
market funding has generally been in the form of commercial paper, domestic and
euro medium-term notes and bonds and transactions through the Company's asset-
backed securitization programs.
The Company uses a variety of derivative financial instruments to manage
interest rate and foreign exchange exposures. The derivative instruments used
include cross currency and interest rate swap agreements, indexed note swap
agreements and option-based products. The Company does not use derivative
instruments for trading purposes.
Competition and Government Regulations
TMCC's primary competitors for retail leasing and financing are commercial
banks, savings and loan associations, credit unions, finance companies and
other captive automobile finance companies. Commercial banks and other captive
automobile finance companies also provide wholesale financing and the other
types of financing discussed above under "Other Dealer Financing" for Toyota
and Lexus dealers. Competition for the principal products and services
provided through the insurance operations is primarily from national and
regional independent service contract providers. TMCC's strategy for long term
profitable growth is to supplement, with competitive financing and insurance
programs, the overall commitment of TMS to offer a complete package of services
to authorized Toyota and Lexus dealers and their customers.
-8-
The finance and insurance operations of the Company are regulated under both
federal and state law. A majority of states have enacted legislation
establishing licensing requirements to conduct retail and other finance and
insurance activities. Most states also impose limits on the maximum rate of
finance charges. In certain states, the margin between the present statutory
maximum interest rates and borrowing costs is sufficiently narrow that, in
periods of rapidly increasing or high interest rates, there could be an adverse
effect on the Company's operations in these states if the Company were unable
to pass on increased interest costs to its customers. In addition, state laws
differ as to whether anyone suffering injury to person or property involving a
leased vehicle may bring an action against the owner of the vehicle merely by
virtue of that ownership. To the extent that applicable state law permits such
an action, TMCC may be subject to liability to such an injured party. However,
the laws of most states either do not permit such suits or limit the lessor's
liability to the amount of any liability insurance that the lessee was required
under applicable law to maintain (or, in some states, the lessor was permitted
to maintain), but failed to maintain. TMCC's lease contracts contain
provisions requiring the lessees to maintain levels of insurance satisfying
applicable state law and TMCC maintains certain levels of contingent liability
insurance for protection from catastrophic claims. TMCC currently does not
monitor ongoing insurance compliance in connection with its customary servicing
procedures.
The Company's operations are also subject to regulation under federal and state
consumer protection and privacy statutes. The Company continually reviews its
operations for compliance with applicable laws. Future administrative rulings,
judicial decisions and legislation may require modification of the Company's
business practices and documentation.
Employee Relations
At April 30, 2002, the Company had approximately 2,600 full-time employees. The
Company considers its employee relations to be good.
Segment Information
Financial information regarding industry segments is set forth in Note 18 -
Segment Information of the Notes to Consolidated Financial Statements.
-9-
ITEM 2. PROPERTIES.
The headquarters of the Company for both finance and insurance operations is
located in Torrance, California. The Company plans to relocate to a new
headquarters location in the TMS headquarters complex, also in Torrance,
California, in fiscal year 2004.
During fiscal 2002, TMCC began the process of restructuring its field
operations, as described under "Item 1. Business - Field Operations-
Restructuring". As of April 30, 2002, the finance operation has three regional
customer service centers ("CSC") and 33 dealer sales and service organizations
("DSSO") in cities throughout the United States; two of the DSSOs share
premises with the regional customer services centers. The CSC for the Central
region is located in Cedar Rapids, Iowa. The CSC for the Western region was
opened in October 2001 and is located in Chandler, Arizona. The CSC for the
Eastern region opened in February 2002 and is located in Owings Mills,
Maryland. The restructuring is expected to be completed in fiscal 2003.
The finance operation also has one subsidiary office in the Commonwealth of
Puerto Rico, one subsidiary office in Venezuela and one subsidiary office in
Mexico. The subsidiary office in Mexico is shared with TMS. The insurance
operation has six regional sales offices, which are located with the finance
operations in either a DSSO or CSC.
All premises are occupied under lease.
ITEM 3. LEGAL PROCEEDINGS.
Various legal actions, governmental proceedings and other claims are pending or
may be instituted or asserted in the future against TMCC and its subsidiaries
with respect to matters arising from the ordinary course of business. Certain
of these actions are or purport to be class action suits, seeking sizeable
damages and/or changes in TMCC's business operations, policies and practices.
Certain of these actions are similar to suits, which have been filed against
other financial institutions and captive finance companies. Management and
internal and external counsel perform periodic reviews of pending claims and
actions to determine the probability of adverse verdicts and resulting amounts
of liability. The amounts of liability on pending claims and actions as of
March 31, 2002 were not determinable; however, in the opinion of management,
the ultimate liability resulting therefrom should not have a material adverse
effect on TMCC's consolidated financial position or results of operations. The
foregoing is a forward looking statement within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities Act
of 1934, as amended, which represents the Company's expectations and beliefs
concerning future events. The Company cautions that its discussion of Legal
Proceedings is further qualified by important factors that could cause actual
results to differ materially from those in the forward looking statement,
including but not limited to the discovery of facts not presently known to the
Company or determinations by judges, juries or other finders of fact which do
not accord with the Company's evaluation of the possible liability from
existing litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
-10-
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
TMCC is a wholly-owned subsidiary of TFSA and, accordingly, all shares of the
Company's stock are owned by TFSA. There is no market for TMCC's stock.
Dividends are declared and paid by TMCC as determined by its Board of
Directors. TMCC's Board of Directors declared a cash dividend of $4 million
that was paid to TFSA during fiscal 2002. No dividends had previously been
declared or paid.
-11-
ITEM 6. SELECTED FINANCIAL DATA.
Year Six Months Years
Ended Ended Ended
March 31, March 31, September 30,
--------- --------- ---------------------------------------
2002 2001 2000 1999 1998 1997
------ ------ ------ ------ ------ ------
(Dollars in Millions)
INCOME STATEMENT DATA
Financing Revenues:
Leasing......................... $ 2,479 $ 1,246 $ 2,402 $ 2,397 $ 2,595 $ 2,743
Retail financing................ 917 390 768 645 531 433
Wholesale and other
dealer financing............. 186 124 182 123 114 101
------ ------ ------ ------ ------ ------
Total financing revenues........ 3,582 1,760 3,352 3,165 3,240 3,277
Depreciation on leases.......... 1,580 753 1,440 1,664 1,681 1,793
Interest expense................ 1,030 726 1,289 940 994 918
SFAS 133 fair value adjustments. (38) 23 - - - -
------ ------ ------ ------ ------ ------
Net financing revenues.......... 1,010 258 623 561 565 566
Insurance premiums earned and
contract revenues............ 155 68 138 122 112 97
Investment and other income..... 206 130 99 88 79 66
Loss on asset impairment........ 70 25 74 19 - -
------ ------ ------ ------ ------ ------
Net financing revenues
and other revenues........... 1,301 431 786 752 756 729
------ ------ ------ ------ ------ ------
Expenses:
Operating and administrative.... 529 236 400 376 323 259
Losses related to Argentine
Investment................... 31 - - - - -
Provision for credit losses..... 263 89 135 83 127 136
Insurance losses and loss
adjustment expenses.......... 76 35 81 63 55 51
------ ------ ------ ------ ------ ------
Total expenses.................. 899 360 616 522 505 446
------ ------ ------ ------ ------ ------
Income before equity in net
loss of subsidiary, income
taxes and cumulative effect
of change in accounting
principle.................... 402 71 170 230 251 283
Equity in net loss of
subsidiary................... - - 1 - - -
Provision for income taxes...... 159 27 65 98 107 121
------ ------ ------ ------ ------ ------
Income before cumulative effect
of change in accounting
principle..................... 243 44 104 132 144 162
Cumulative effect of change in
accounting principle, net of
tax benefits.................. - (2) - - - -
------ ------ ------ ------ ------ ------
Net Income...................... $ 243 $ 42 $ 104 $ 132 $ 144 $ 162
====== ====== ====== ====== ====== ======
-12-
March 31, September 30,
------------------ --------------------------------------
2002 2001 2000 1999 1998 1997
-------- -------- -------- -------- -------- --------
(Dollars in Millions)
BALANCE SHEET DATA
Finance receivables, net.. $ 22,390 $ 19,216 $ 18,168 $ 13,856 $ 11,521 $ 8,452
Finance receivables, net -
securitized............. $ 1,087 $ - $ - $ - $ - $ -
Investments in operating
leases, net............. $ 7,631 $ 7,409 $ 7,964 $ 8,605 $ 9,765 $ 10,257
Total assets.............. $ 34,260 $ 29,214 $ 28,036 $ 24,578 $ 23,225 $ 19,830
Notes and loans payable... $ 25,990 $ 22,194 $ 21,098 $ 18,565 $ 17,597 $ 14,745
Notes payable related to
securitized finance
receivables structured
as collateralized
borrowings.............. $ 1,036 $ - $ - $ - $ - $ -
Capital stock............. $ 915 $ 915 $ 915 $ 915 $ 915 $ 915
Retained earnings......... $ 1,820 $ 1,581 $ 1,539 $ 1,435 $ 1,303 $ 1,159
Year Six Months Years
Ended Ended Ended
March 31, March 31, September 30,
--------- --------- ---------------------------------------
2002 2001 2000 1999 1998 1997
------ ------ ------ ------ ------ ------
(Dollars in Millions)
KEY FINANCIAL DATA
Ratio of earnings to
fixed charges.......... 1.39 1.10 1.13 1.24 1.25 1.31
Debt to Equity............ 9.82 8.83 8.53 7.85 7.89 7.09
Return on Assets.......... .77% .15% .40% .55% .67% .83%
Return on Equity.......... 9.23% 1.68% 4.30% 5.74% 6.68% 8.11%
Allowance for credit
losses as a percent
of gross earning
assets................. .90% .85% .87% .89% 1.02% 1.13%
Net credit losses as a
percent of average
earning assets......... .59% .50% .39% .40% .51% .55%
Aggregate balances at end of
period for finance receivables
and operating leases 60 or more
days past due as a percent
of net investments in operating
leases and gross receivables
outstanding.................... .40% .21% .21% .20% .15% .14%
Certain prior period amounts have been reclassified to conform with the current
period presentation.
-13-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Basis of Presentation
- ---------------------
In view of the change in the Company's fiscal year from September 30 to
March 31 during fiscal 2001, management's discussion and analysis of financial
condition and results of operation will:
- compare the audited results of operations for the year ended March 31, 2002
to the proforma results of operations for the year ended March 31, 2001;
- compare the audited results of operations for the six months ended
March 31, 2001 ("transition period") to the proforma results of
operations for the six months ended March 31, 2000; and,
- compare the results of operations for the year ended September 30, 2000, to
the results of operations for the year ended September 30, 1999.
- the use of proforma results of operations provide meaningful comparative
analysis. Such proforma results of operation are appropriately noted.
Critical Accounting Policies
- ---------------------------------
TMCC has identified the policies below as critical to the Company's business
operations and the understanding of our results of operations. The impact and
any associated risks related to these policies on the Company's business
operations are discussed throughout Management's Discussion and Analysis of
Financial Condition and Results of Operations where such policies affect our
reported and expected financial results. The evaluation of the factors
described below in determining each of the Company's critical accounting
policies involves significant assumptions, complex analysis and management
judgment. Thus, changes in these factors may significantly impact the
Consolidated Financial Statements. Different assumptions or changes in
economic circumstances could result in additional changes to the allowances
for credit and residual value losses, the valuation of the Company's retained
interests and derivatives and its results of operations and financial
condition.
Allowance for Credit Losses
- ---------------------------------
TMCC maintains allowances to cover estimated losses on its present owned
portfolio resulting from the inability of customers to make required payments.
The allowance for credit losses is evaluated quarterly, considering historical
trends of repossession, charge-offs, recoveries and credit losses. In
addition, portfolio credit quality, and current and projected economic and
market conditions, are monitored and taken into account. After carefully
evaluating these factors, management develops several loss scenarios and
reviews allowance levels to ensure reserves are adequate to cover the probable
range of losses. The allowance for credit losses is considered by management
to be appropriate in relation to the expected loss experience on the present
owned portfolio. Losses are charged to the allowance when it has been
determined that payments will not be received and collateral cannot be
recovered or the related collateral is repossessed and sold. Any shortfall
between proceeds received and the carrying cost of repossessed collateral is
charged to the allowance. Recoveries are credited to the allowance for credit
losses. The allowance for credit losses and related provision expense are
included in finance receivables, net and investment in operating leases, net in
the Consolidated Balance Sheet and total expenses in the Consolidated Statement
of Income, respectively.
-14-
Allowance for Residual Value Losses
- ----------------------------------------
The Company also maintains an allowance to cover estimated vehicle disposition
losses related to unguaranteed residuals on its present owned portfolio. The
allowance required to cover estimated residual value losses is evaluated
quarterly, considering projected vehicle return rates and projected residual
value losses derived from historical and market information on used vehicle
sales, historical factors including trends in lease returns, the new car
markets, and general economic conditions. After carefully evaluating these
factors, management develops several loss scenarios and reviews allowance
levels to ensure reserves are adequate to cover the probable range of losses.
The allowance for residual value losses is maintained in amounts considered by
management to be appropriate in relation to the expected losses on the present
owned portfolio. Upon disposal of the assets, the allowance for residual
losses is adjusted for the difference between the net book value and the
proceeds from sale. The allowance for residual value losses and related
provision expense are included in finance receivables, net and investment in
operating leases, net in the Consolidated Balance Sheet and lease depreciation
expense in the Consolidated Statement of Income, respectively.
Gain on Sale of Receivables and Valuation of Residual Interests
- ---------------------------------------------------------------
The Company recognizes gains on the sale of receivables in accordance with
SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, which replaced FASB Statement No. 125 and
other related pronouncements. The gain on sale is reported in the accompanying
Consolidated Statement of Income under investment and other income. The gain
on sale recorded depends, in part, on the carrying amount of the assets at the
time of the sale. The carrying amount is allocated between the assets sold and
the retained interests based on their relative fair values at the date of the
sale.
TMCC records its retained assets at fair value, which is estimated by using a
discounted cash flow analysis. The retained assets are not considered to have
a readily available market value. The key economic assumptions used in the
calculation of the initial gain on sale of receivables and the subsequent
valuation of the retained interests include the estimated interest rate
environment (in order to project the net rate earned on the residual
interests, if applicable), severity and rate of credit losses, and the
prepayment speed of the receivables. Management estimates the credit loss
rate based on a number of factors including attributes of the finance
receivables securitized. Attributes considered include the new versus used
vehicle contract mix, loan credit scoring, and seasoning of contracts sold.
To determine the prepayment assumption used, management considers prior and
current prepayment speeds of outstanding securitization transactions and
estimated future economic conditions. Discount rates applied to the residual
interests at the point of sale are at current market rates based on an
investment with a similar term and risk associated with the retained interest.
All key assumptions used in the valuation of the retained interests are
reviewed at least quarterly and are revised as deemed appropriate. After
carefully evaluating the factors discussed above, management ensures that the
final assumptions used are adequate to cover probable potential losses or
decreases in cash flows related to the prepayment of assets.
In certain transactions, the securitization trust issues securities bearing
interest at variable rates, although the underlying receivables held by the
securitization trust bear interest at fixed rates. In these circumstances,
swaps are used to fix the spread between the different interest rates. As a
result, management does not need to factor in possible adverse interest rate
changes that would reduce the value of the retained interests.
-15-
The Company accounts for its retained interests in accordance with EITF No.
99-20, "Recognition of Interest Income and Impairment on Purchased and
Retained Beneficial Interests in Securitized Financial Assets." Under EITF 99-
20, TMCC recognizes the excess of all cash flows attributable to the
beneficial interest estimated at the acquisition/transaction date (the
"transaction date") over the initial investment as interest income over the
life of the beneficial interest using the effective yield method. As
adjustments to the estimated cash flows are made based upon expected market
conditions, the Company adjusts the rate at which income is earned
prospectively. Additionally, EITF 99-20 provides guidance as to when the
holder of a retained interest must conclude that a decline in value below the
carrying amount is considered permanent impairment. TMCC's policy is that if
a decrease in the estimated future cash flows results in a fair value below
the carrying amount and the decline is considered permanent, then the asset is
written down through earnings (as opposed to other comprehensive income). Any
excess of the carrying amount of the retained interest over its fair value
results in an adjustment to the asset with a corresponding offset to
unrealized gain. Unrealized gains, net of income taxes, related to retained
assets are included in comprehensive income.
Derivatives and Hedging Activities
- ----------------------------------
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133") requires companies to record
derivatives on the balance sheet as assets and liabilities, measured at fair
value. Fair value is determined using externally quoted market values where
possible. If externally quoted market rates are not available, the Company
uses external market rates in conjunction with a customized market valuation
system to determine the fair value of the Company's derivatives. Derivative
assets and liabilities include interest rate swaps, indexed note swap
agreements, cross currency interest rate swap agreements and option-based
products. The accounting for the gain or loss due to changes in fair value of
the hedged item depends on whether the relationship between the hedged item and
the derivative instrument qualifies for hedge treatment. If the relationship
between the hedged item and the derivative instrument does not qualify as a
hedge, the gains or losses are reported in earnings when they occur. However,
if the relationship between the hedged item and the derivative instrument
qualifies as a hedge, the accounting varies based on the type of risk being
hedged. The types of instruments that do not qualify for hedge accounting
include, but are not limited to, U.S. basis swap instruments, and currency
structured transactions including inverse floating rate instruments.
Derivatives are recognized in the balance sheet at their fair value. On the
date that the Company enters into a derivative contract, it designates the
derivative as a hedge of the fair value of a recognized asset or liability or a
foreign-currency fair-value hedge (a "foreign currency hedge"). Changes in the
fair value of a derivative that is highly effective as - and that is designated
and qualifies as - a fair-value hedge or foreign-currency hedge, along with
changes in fair value of the hedged assets or liabilities that are attributable
to the hedged risk, are recorded in current-period earnings. Additional
information concerning the SFAS No. 133 requirements is disclosed in Note 8 -
Derivatives and Hedging Activities of the Notes to Consolidated Financial
Statements and Note 2 - Summary of Significant Accounting Policies - Derivative
Financial Instruments.
-16-
Net Income
- ----------
The following table summarizes TMCC's net income by business segment for the
years ended March 31, 2002 and 2001, the six months ended March 31, 2001 and
2000, and the years ended September 30, 2000 and 1999:
Year Ended Six Months Ended Years Ended
March 31, March 31, September 30,
------------------ ------------------- ------------------
2002 2001(1) 2001 2000(1) 2000 1999
------ ------- ------ ------- ------ ------
(Dollars in Millions)
Net income:
Financing operations.. $ 199 $ 51 $ 22 $ 41 $ 70 $ 113
Insurance operations.. 44 38 20 16 34 19
------ ------ ------ ------ ------ ------
Total net income... $ 243 $ 89 $ 42 $ 57 $ 104 $ 132
====== ====== ====== ====== ====== ======
(1) Pro Forma
Net income from financing operations increased $148 million, or 290%, for the
year ended March 31, 2002 as compared to the year ended March 31, 2001
primarily due to an increase in finance margin resulting from lower interest
rates, higher earning asset amounts funded, and favorable fair value adjustment
related to the Statement of Financial Statement Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"),
which is reported as SFAS 133 fair value adjustments in the Consolidated
Statement of Income. This increase was partially offset by higher termination
losses, increased net credit losses, higher impairment of assets retained from
the sale of retail finance receivables, the write-off of its $5 million
investment in Toyota Credit Argentina, S.A. ("TCA") and the establishment of a
reserve of $26 million relating to TMCC's $40 million guaranty of TCA's
offshore outstanding debt and higher operating and administrative expenses
which increased as a result of the costs incurred in connection with the
restructuring of TMCC's field operations.
Net income from financing operations decreased $19 million, or 46%, in the
transition period as compared to the six months ended March 31, 2000, primarily
due to lower interest margin as a result of higher interest expense, higher
operating and administrative expenses, higher provision for credit losses,
losses associated with the implementation of SFAS 133 in fiscal 2001 and the
recognition of asset impairment losses partially offset by higher financing
revenues and higher investment and other income. The decrease in fiscal 2000
financing operations net income from fiscal 1999 is due primarily to lower
interest margin as a result of higher interest expense, the recognition of
asset impairment losses, higher provision for credit losses, and higher
operating and administrative expenses.
Net income from insurance operations increased $6 million, or 16%, for the year
ended March 31, 2002 as compared to the year ended March 31, 2001 primarily due
to increased contract volume. Net income from insurance operations increased
$4 million, or 25%, in the transition period as compared to the six months
ended March 31, 2000, primarily due to higher investment income resulting from
increased net realized gains on sales of available-for-sale securities,
partially offset by higher provision for income taxes. There can be no
assurance that the Company will recognize similar gains in future periods. The
increase in fiscal 2000 insurance operations net income from fiscal 1999 is
primarily due to higher insurance premiums earned and contract revenues, higher
investment income and lower provision for income taxes, partially offset by
higher insurance losses and loss adjustment expenses. Additional information
concerning TMCC's financing and insurance operations is disclosed in Note 18 -
Segment Information of the Notes to Consolidated Financial Statements.
-17-
Earning Assets
- --------------
The composition of TMCC's net earning assets (which excludes receivables sold
through securitization transactions that qualify as a sale for legal and
accounting purposes, but includes receivables sold through securitization
transactions that qualify as a sale for legal but not accounting purposes,
under the Financial Accounting Standards Board Statement No. 140, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities"), as of the balance sheet dates reported herein and TMCC's vehicle
lease and retail contract volume and finance penetration for the years ended
March 31, 2002 and 2001, the six months ended March 31, 2001 and 2000, and for
the years ended September 30, 2000 and 1999, are summarized below:
March 31, September 30,
------------------ ------------------
2002 2001 2000 1999
-------- -------- -------- --------
(Dollars in Millions)
Vehicle lease
Investment in operating leases, net... $ 7,215 $ 6,994 $ 7,580 $ 8,290
Finance leases, net................... 6,338 6,432 5,504 3,315
-------- -------- -------- --------
Total vehicle leases.................... 13,553 13,426 13,084 11,605
Vehicle retail finance receivables, net. 13,409 9,034 10,235 8,916
Vehicle wholesale and other financing... 4,429 4,392 3,043 2,142
Allowance for credit losses............. (283) (227) (230) (202)
-------- -------- -------- --------
Total net earning assets................ $ 31,108 $ 26,625 $ 26,132 $ 22,461
======== ======== ======== ========
Years Ended Six Months Ended Years Ended
March 31, March 31, September 30,
------------------ -------------------- ------------------
2002 2001(1) 2001 2000(1) 2000 1999
-------- -------- -------- -------- -------- --------
Total contract volume:
Vehicle retail.................... 643,000 432,000 209,000 189,000 412,000 333,000
Vehicle lease..................... 192,000 216,000 102,000 126,000 240,000 249,000
-------- -------- -------- -------- -------- --------
Total................................ 835,000 648,000 311,000 315,000 652,000 582,000
======== ======== ======== ======== ======== ========
TMS sponsored contract volume:
Vehicle retail.................... 149,000 59,000 33,000 18,000 44,000 46,000
Vehicle lease..................... 33,000 58,000 30,000 31,000 59,000 96,000
-------- -------- -------- -------- -------- --------
Total................................ 182,000 117,000 63,000 49,000 103,000 142,000
======== ======== ======== ======== ======== ========
Used contract volume:
Vehicle retail.................... 224,000 160,000 80,000 69,000 149,000 112,000
Vehicle lease..................... 5,000 6,000 3,000 4,000 8,000 6,000
-------- -------- -------- -------- -------- --------
Total................................ 229,000 166,000 83,000 73,000 157,000 118,000
======== ======== ======== ======== ======== ========
Finance penetration
(excluding fleet) (2):
Vehicle retail.................... 25.9% 18.0% 18.4% 17.0% 17.5% 16.0%
Vehicle lease..................... 11.6% 14.1% 14.1% 17.4% 15.4% 17.7%
-------- -------- -------- -------- -------- --------
Total................................ 37.5% 32.1% 32.5% 34.4% 32.9% 33.7%
======== ======== ======== ======== ======== ========
(1) Pro Forma
(2) Finance penetration represents penetration of Toyota and Lexus vehicle financed sales to
consumers.
-18-
TMCC's net earning assets as of March 31, 2002 increased significantly from
March 31, 2001 primarily due to an increase in retail and vehicle wholesale and
other financing earning assets. The increase in retail earning assets is
primarily due to higher levels of incentives on new vehicles and the strong
sales of Toyota and Lexus vehicles. The increase in wholesale earning assets
was primarily due to a 23% increase in the number of dealers receiving
wholesale financing.
TMCC's net earning assets as of March 31, 2001 increased slightly from
September 30, 2000 due to growth in wholesale and finance lease earning assets,
partially offset by a decline in retail and operating lease earning assets.
The increase in wholesale earning assets was primarily due to a 6% increase in
the number of dealers receiving wholesale financing. The increase in finance
lease earning assets was primarily due to volume exceeding liquidations during
the transition period. The decline in retail earning assets was primarily due
to the sales of retail receivables pursuant to securitizations totaling
$3.1 billion during the transition period.
TMCC's net earning assets as of September 30, 2000 increased from September 30,
1999 due to growth in retail, finance lease and wholesale earning assets,
partially offset by a decline in operating lease earning assets.
In October 1996, TMCC created Toyota Lease Trust, a Delaware business trust
(the "Titling Trust"), to act as a lessor and to hold title to leased vehicles
in specified states. The value of the lease contracts purchased by the Titling
Trust during the year ended March 31, 2002 and the six months ended March 31,
2001 and 2000, represented approximately 47%, 48% and 42%, respectively, of all
lease contracts purchased by both TMCC and the Titling Trust. The value of the
lease contracts purchased by the Titling Trust in fiscal 2000 and 1999
represented approximately 43% and 41%, respectively, of all lease contracts
purchased by both TMCC and the Titling Trust. TMCC holds an undivided trust
interest in lease contracts owned by the Titling Trust, and such lease
contracts are included in TMCC's lease assets, unless and until such time as
the beneficial interests in such contracts are transferred in connection with
a securitization transaction. The majority of all leases owned by the Titling
Trust are classified as finance receivables due to certain residual value
insurance arrangements in place with respect to such leases, while leases of
similar nature originated outside of the Titling Trust are classified as
operating leases. The purchase of residual value insurance on leases acquired
by the Titling Trust before June 2001 changed the composition of the Company's
earning assets resulting in an increasing mix of finance receivables relative
to operating lease assets due to the classification differences described
above. However, beginning June 2001, the purchasing of residual value
insurance on lease contracts was terminated. As a result, the future
composition of the Company's lease portfolio will gradually change as more
leases acquired by the Titling Trust will be classified as operating leases.
TMS sponsors special lease and retail programs which subsidize reduced monthly
payments on certain Toyota and Lexus new vehicles to qualified lease and retail
customers. Toyota Material Handling, U.S.A., Inc. ("TMHU") subsidizes reduced
monthly payments on certain Toyota industrial equipment to qualified lease and
retail customers. Support amounts received from TMS and TMHU in connection
with these programs approximate the balances required by TMCC to maintain
revenues at standard program levels and are earned over the expected lease and
retail installment contract terms. The level of sponsored program activity
varies based on TMS and TMHU's marketing strategies, and revenues earned vary
based on the mix of Toyota and Lexus vehicles, timing of programs and the level
of support provided. Support amounts earned from TMS and TMHU's sponsored
special lease and retail contracts totaled $143 million, $63 million, $61
million, $108 million and $126 million for the fiscal year ended March 31,
2002, the six months ended March 31, 2001 and 2000, and for fiscal years 2000
and 1999, respectively.
TMCC's decrease in lease contract volume and corresponding increase in retail
contract volume during the year ended March 31, 2002 as compared to the year
ended March 31, 2001 reflects a general shift in programs sponsored by TMS from
lease to retail as well as an industry-wide shift away from leasing.
-19-
TMCC's lease contract volume declined during the transition period ended March
31, 2001 as compared to the six months ended March 31, 2000 reflecting lower
finance penetration due to lower levels of programs sponsored by TMS. TMCC's
retail contract volume for the transition period ended March 31, 2001 increased
from the six months ended March 31, 2000 primarily due to competitive pricing
and the strong sales of Toyota and Lexus vehicles and higher TMS sponsored
programs.
TMCC's lease contract volume for the year ended September 30, 2000 declined
from 1999 reflecting lower levels of programs sponsored by TMS. TMCC's retail
contract volume for the year ended September 30, 2000 increased from 1999
levels due to competitive pricing and the strong sales of Toyota and Lexus
vehicles.
The increase in used vehicle retail contract volume during the year ended
March 31, 2002 reflects an increased supply of used cars returned to dealers in
the form of trade-ins due to recent new model incentives, a large supply of
used vehicles due to the volume of vehicles coming off-lease and a shift from
leasing to retail financing. The increase in used vehicle retail contract
volume during the transition period and fiscal 2000 reflects a large supply of
used vehicles due to the volume of vehicles coming off-lease as well as a shift
from leasing to retail financing.
Net Financing Revenues
- ----------------------
TMCC's net financing revenues increased $412 million, or 69%, for the year
ended March 31, 2002 as compared to the year ended March 31, 2001 due to lower
interest expense, higher financing revenues and favorable fair value adjustment
related to SFAS 133, which is reported as SFAS 133 fair value adjustments in
the Consolidated Statement of Income. TMCC's net financing revenues decreased
$25 million, or 9%, during the transition period ended March 31, 2001 as
compared to the six months ended March 31, 2000 primarily due to higher
interest expense and losses associated with the adoption of SFAS 133
substantially offset by higher financing revenues. TMCC's net financing
revenues increased in fiscal 2000 primarily due to lower depreciation expenses
and higher retail and wholesale revenues, substantially offset by higher
interest expense. The purchase of residual value insurance for lease contracts
acquired by the Titling Trust caused a shift in the composition of the lease
portfolio from operating leases to finance leases, as discussed earlier, and
resulted in decreased straight-line depreciation and decreased revenues from
operating leases. However, due to the termination of residual value insurance
on lease contracts beginning in June 2001, straight-line depreciation and
operating lease revenues are expected to increase as leases acquired by the
Titling Trust will be classified as operating leases.
Depreciation on Leases
- ----------------------
The following table sets forth the items included in TMCC's depreciation on
leases for the years ended March 31, 2002 and 2001, the six months ended March
31, 2001 and 2000, and for the years ended September 30, 2000 and 1999:
Years Ended Six Months Ended Years Ended
March 31, March 31, September 30,
------------------ -------------------- ------------------
2002 2001(1) 2001 2000(1) 2000 1999
-------- -------- -------- -------- -------- --------
(Dollars in Millions)
Straight-line depreciation
on operating leases........... $1,199 $1,241 $ 612 $ 644 $1,273 $1,378
Provision for residual value
losses........................ 381 237 141 106 202 286
TMS support for certain vehicle
disposition losses............ - (35) - - (35) -
------ ------ ------ ------ ------ ------
Total depreciation on leases..... $1,580 $1,443 $ 753 $ 750 $1,440 $1,664
====== ====== ====== ====== ====== ======
(1) Pro Forma
-20-
Straight-line Depreciation
Straight-line depreciation expense on operating leases decreased 3% during the
twelve months ended March 31, 2002 compared to the comparable prior period
resulting from decline in average outstanding operating lease assets.
Straight-line depreciation expense decreased 5% during the transition period
compared to the same period in fiscal 2000, and 8% during fiscal 2000 also as
a result of a decrease in average outstanding operating lease assets. As
discussed earlier, purchasing residual value insurance for leases acquired by
the Titling Trust through June 2001 increased the ratio of lease finance
receivables relative to operating lease assets. TMCC discontinued purchasing
residual value insurance for operating lease assets acquired by the Titling
Trust beginning July 2001. The Company expects an increase in straight-line
depreciation expense as operating leases become a larger proportion of the
Company's lease portfolio.
Residual Value Losses
TMCC is subject to residual value risk in connection with its lease portfolio.
TMCC's residual value exposure is a function of the number of off-lease
vehicles returned for disposition and any shortfall between the net
disposition proceeds and the estimated unguaranteed residual values on
returned vehicles. If the market value of a leased vehicle at contract
termination is less than its contract residual value, the vehicle is more
likely to be returned to TMCC. A higher rate of vehicle returns exposes TMCC
to a risk of higher aggregate losses.
Total unguaranteed residual values related to TMCC's vehicle lease portfolio
increased from approximately $6.9 billion to $7.1 billion between March 31,
2001 and March 31, 2002, respectively. The increase primarily resulted from
the suspension of purchasing residual value insurance for operating leases
acquired by the Titling Trust beginning in June 2001. Total unguaranteed
residual values related to TMCC's vehicle lease portfolio decreased from
approximately $7.1 billion at March 31, 2000 to $6.9 billion at March 31, 2001
due in part to the continuation of purchasing residual value insurance for
operating leases acquired by the Titling Trust. Total unguaranteed residual
values related to TMCC's vehicle lease portfolio increased from approximately
$6.5 billion at September 30, 1999 to $7.0 billion at September 30, 2000
commensurate with the growth in leased assets during the same period.
The increase of $144 million in the provision for residual value losses as of
March 31, 2002 reflects the overall increases in vehicle return rates and
losses per vehicle experienced in the current year as well as expected market
conditions. TMCC believes that reserve levels at March 31, 2002 are adequate
to cover expected losses on its vehicle portfolio.
TMCC experienced a $76 million (31%) increase in losses at vehicle disposition
in the fiscal year ended March 31, 2002 relative to the comparable period
ended March 31, 2001. The increase resulted from an increased supply of off-
lease vehicles, higher return rates and higher average losses per vehicle.
The increase in losses also reflects the downward pressure placed on used
vehicle prices as a result of the general economic downturn, competitive new
vehicle pricing for core Toyota and Lexus models and industry-wide record
levels of incentives on new vehicles. The Company also believes that these
factors were compounded by auto manufacturers' responding to the events of
September 11, 2001 with additional incentives, which continued throughout the
remainder of fiscal 2002.
The increase of $36 million in losses at vehicle disposition during the
transition period as compared to the six months ended March 31, 2000 also
reflects a larger supply of vehicles coming off-lease, higher off-lease
vehicle return rates and higher losses per vehicle. The provision for
residual value losses increased in the transition period as a result of these
factors.
-21-
The Company also maintains an allowance to cover estimated vehicle disposition
losses related to unguaranteed residuals on its present owned portfolio. The
allowance required to cover estimated residual value losses is evaluated
quarterly, considering projected vehicle return rates and projected residual
value losses derived from historical and market information on used vehicle
sales, historical factors including trends in lease returns, the new car
markets, and general economic conditions. After carefully evaluating these
factors, management develops several loss scenarios and reviews allowance
levels to ensure reserves are adequate to cover the probable range of losses.
The allowance for residual value losses is maintained in amounts considered by
management to be appropriate in relation to the expected losses on the present
owned portfolio. Upon disposal of the assets, the allowance for residual
losses is adjusted for the difference between the net book value and the
proceeds from sale. The allowance for residual value losses and related
provision expense are included in finance receivables, net and investment in
operating leases, net in the Consolidated Balance Sheet and lease depreciation
expense in the Consolidated Statement of Income, respectively.
The decrease in the provision for residual value losses in fiscal 2000
compared to fiscal 1999 reflects reduced vehicle disposition losses of $30
million during fiscal 2000 coupled with management's estimate that reserve
levels during the same period were considered adequate to cover expected
losses at September 2000. The decrease in vehicle disposition losses was
primarily due to a decrease in the number of vehicles scheduled to terminate
resulting from the sale of interests in lease finance receivables during
fiscal 1997 and 1998, partially offset by a higher rate of vehicle returns.
In addition to the factors discussed above, disposition losses may also be
affected by the amount and types of accessories or installed optional
equipment included in leased vehicles. Although vehicle loss rates are
typically the result of a combination of factors, to the extent certain types
of optional equipment depreciate more rapidly than the value of the base
vehicle, leased vehicles, having a greater portion of their manufacturer's
suggested retail price attributable to such optional equipment, will
experience relatively higher levels of loss. To help mitigate risk of loss
associated with accessories and optional equipment, TMCC implemented a new
residual value setting policy beginning with model year 1999 Toyota vehicles.
Under the new policy, the residual value applicable to the base vehicle and
the residual value applicable to certain specified optional accessories and
optional equipment are calculated separately.
The Company has also taken action to reduce vehicle disposition losses by
developing strategies to increase dealer purchases of off-lease vehicles and
expanding marketing of off-lease vehicles through the internet to maximize
proceeds on vehicles sold through auction.
Vehicle Lease Return Rates
The number of returned leased vehicles sold by TMCC during a specified period
as a percentage of the number of lease contracts that as of their origination
dates were scheduled to terminate in the same period was 55% for the year
ended March 31, 2002 as compared to 51%, 54%, 52%, 50% and 47% for the twelve
months ended March 31, 2001, the six months ended March 31, 2001 and 2000 and
for the years ended September 30, 2000 and 1999, respectively. The increase
for the year ended March 31, 2002 as compared to the same period ended March
31, 2001, is primarily due to the higher supply of off-lease vehicles.
TMS Support
Under an arrangement with TMS, TMCC received support for vehicle disposition
losses in June 2000. No assurance can be provided as to either the level of
support or the continuation of the support arrangement in future periods.
-22-
Interest Expense
- ----------------
Interest expense decreased 28% during the year ended March 31, 2002 as compared
to the year ended March 31, 2001 primarily due to lower average cost of
borrowings, partially offset by higher average outstanding debt. Interest
expense increased 22% during the six months ended March 31, 2001 compared with
the six months ended March 31, 2000, and 37% in fiscal 2000 compared with
fiscal 1999 primarily due to higher average cost of borrowings and an increase
in average debt outstanding. The weighted average cost of borrowings was 4.06%,
6.46%, 6.44%, 6.07%, 6.30% and 5.34% for the years ended March 31, 2002 and
2001, the six months ended March 31, 2001 and 2000, and for the fiscal years
ended September 30, 2000 and 1999, respectively.
Insurance
- ---------
The principal activities of TMCC's insurance subsidiary, Toyota Motor
Insurance Services, Inc. ("TMIS"), include marketing, underwriting, claims
administration and providing certain insurance and contractual coverages to
Toyota and Lexus vehicle dealers and their customers. In addition, TMIS
insures and reinsures certain TMS and TMCC risks. Insurance premiums earned
and contract revenues recognized from insurance operations increased $17
million, or 12%, for the year ended March 31, 2002 as compared with the year
ended March 31, 2001 primarily due to increased contract volume. Insurance
premiums earned and contract revenues remained constant during the six months
ended March 31, 2001 as compared to the six months ended March 31, 2000.
Insurance premiums earned and contract revenues recognized from insurance
operations increased $16 million, or 13%, in fiscal 2000 due to higher
underwriting revenues associated with in-force agreements.
Investment and Other Income
- ---------------------------
The following table summarizes TMCC's investment and other income for the year
ended March 31, 2002, the six months ended March 31, 2001 and 2000, and for
fiscal years ended September 30, 2000 and 1999:
Years Ended Six Months Ended Years Ended
March 31, March 31, September 30,
------------------ -------------------- -----------------
2002 2001(1) 2001 2000(1) 2000 1999
-------- -------- -------- -------- ------- --------
(Dollars in Millions)
Investment income.............. $ 96 $ 113 $ 68 $ 22 $ 60 $ 34
Gains on receivables sold...... 81 52 42 1 5 15
Servicing fee and other income. 29 38 20 17 34 39
------ ------ ------ ------ ------ ------
Investment and other income. $ 206 $ 203 $ 130 $ 40 $ 99 $ 88
====== ====== ====== ====== ====== ======
(1) Pro Forma
The increase in investment and other income for the twelve months ended March
31, 2002 as compared to the twelve months ended March 31, 2001 is primarily due
to higher gains on sold receivables, partially offset by a decrease in
investment income. The increase in investment and other income for the
transition period ended March 31, 2001 as compared to the six months ended
March 31, 2000 is primarily due to higher investment income and gains on
receivables sold. The increase in investment and other income from fiscal 1999
to fiscal 2000 is primarily due to higher investment income, partially offset
by lower gains on receivables sold and lower servicing fee income.
-23-
Investment Income
The decrease in investment income for the twelve months ended March 31, 2002 as
compared to the twelve months ended March 31, 2001 is due to decreased net
realized gains on sales of available-for-sale securities coupled with a general
decrease in interest rates. The increase in investment income during the
transition period ended March 31, 2001 as compared to the six months ended
March 31, 2000, and during fiscal 2000 as compared to fiscal 1999, reflects
higher market interest rates and an increase in TMCC's portfolio of marketable
securities due to a higher level of assets retained in connection with recent
retail securitizations.
Servicing Fee Income
Servicing fee income decreased for the twelve months ended March 31, 2002 as
compared to the twelve months ended March 31, 2001 due to fewer securitization
transactions qualifying for sale treatment in the current fiscal year. TMCC
normally collects a 1% servicing fee on sold receivables. Due to the nature
of, and accounting treatment for, the September 2001 transaction, TMCC is not
paid this fee for the receivables included in that transaction. Servicing fee
income increased 18% for the six months ended March 31, 2001 compared to the
six months ended March 31, 2000 due to the increase in the level of sold
retail receivables. Servicing fee income decreased 13% for the fiscal year
ended September 30, 2000 due to the reduction in the average balance of sold
interests in lease and retail finance receivables as well as the temporary
waiver of servicing fee income related to the fiscal 1997 sale of interests in
lease finance receivables. Servicing fee income increased 50% for the fiscal
year ended September 30, 1999 due to the growth in the combined balance of
sold interests in lease finance and sold retail receivables.
Gains on Receivables Sold
Gains recognized on asset-backed securitization transactions generally
accelerate the recognition of income on lease and retail contracts, net of
related deferrals, into the period the assets are sold. Numerous factors can
affect the timing and amounts of these gains, such as the type and amount of
assets sold, the structure of the sale, key assumptions used and current
financial market conditions.
Gains on receivables sold increased $29 million to $81 million for the twelve
months ended March 31, 2002 as compared to the twelve months ended March 31,
2001. The increase reflects decreases in market interest rates, which resulted
in larger spreads retained by the Company, coupled with an increased use of
securitization. Gains on receivables sold increased $41 million during the six
months ended March 31, 2001 as compared to the same period in fiscal 2000,
primarily due to decreases in market interest rates which result in larger
spreads being retained by the Company. Gains on receivables sold decreased $10
million during fiscal year 2000 due to an increase in market interest rates.
Gains on assets sold are further discussed in Note 7 - Sale of Receivables and
Securitization of the Notes to Consolidated Financial Statements.
-24-
Loss on Asset Impairment
- ---------------------------
TMCC performs a review of the fair market value of assets retained in the sale
of retail receivables and interests in lease finance receivables on at least a
quarterly basis. The fair market value of these retained assets is impacted
by management's and the market's expectations as to future losses on vehicle
disposition, credit losses and prepayment rates.
Impairment losses related to lease and retail finance receivables totaled $70
million for the twelve months ended March 31, 2002. Losses related to asset
impairment are discussed further in Note 7: Sale of Receivables and
Securitization.
In June 2001, the Company experienced increased return rates and loss per unit
upon disposition relating to vehicles associated with its lease and finance
receivables. This experience, combined with revised forecasts for future
return rates and loss per unit, resulted in a downward revision to the vehicle
disposition assumptions. The assumption for expected residual value losses
for TMCC's lease securitizations was 4.9%-7.6% at March 31, 2001 and was
revised to 7.1%-7.9% at June 30, 2001. The increase in residual value loss
assumptions was primarily due to the performance of leases originated prior to
model year 1999 and scheduled to terminate over the next 3 months. As a
result of the change in assumptions, TMCC recognized losses due to the
permanent impairment of assets retained in the sale of interests in lease
finance receivables totaling $47 million as required by EITF 99-20, which was
adopted in the first quarter of fiscal year 2002.
During fiscal year 2002 TMCC recognized an additional $23 million in
impairment losses related to retail finance receivables as a result of actual
credit losses exceeding original credit loss assumptions. Actual credit
losses increased primarily due to recent economic conditions, restructuring of
field operations, and the impact of a full year under tiered pricing. Retail
credit loss assumptions have been revised as of March 31, 2002 to reflect
current market conditions. The $23 million impairment charge effectively
reduces the value of TMCC's retained interests in securitized retail finance
receivables to estimated net realizable value as of March 31, 2002.
During the third quarter of fiscal 2000, the Company refined its methodology
for forecasting losses on vehicle disposition to better reflect recent and
expected loss experience. TMCC recognized losses due to the permanent
impairment of assets retained in the sale of interests in lease finance
receivables totaling $25 million, $14 million, $74 million and $19 million
during the six months ended March 31, 2001 and 2000, and during the years
ended September 30, 2000 and 1999, respectively, resulting from an increase in
vehicle disposition loss assumptions related to leases originated prior to
model year 1999 and terminating fiscal years 2000 through 2004. The Company
did not recognize any impairment losses related to assets retained in the sale
of retail finance receivables during the six months ended March 31, 2001 and
2000, or during the years ended September 30, 2000 and 1999, respectively.
-25-
Losses Related to Argentine Investment
- --------------------------------------
TMCC has executed guarantees totaling $65 million in respect to TCA's offshore
dollar bank loans, of which approximately $40 million, including principal and
interest, is outstanding. Late in 2001, the Argentine government instituted a
series of changes that led to political, economic and regulatory risks to
Argentine businesses. The government has imposed foreign exchange controls
restricting offshore payment transfers, and these controls are currently
preventing TCA from sending payments on its offshore dollar loans out of
Argentina. In February 2002, the Argentine government established measures to
re-denominate the entire Argentine economy into pesos and has permitted the
peso to float freely against other global currencies. This re-denomination
policy adversely affected TCA's financial condition and its ability to fully
satisfy its offshore dollar loans. Consequently, TMCC has included a charge
against income of $31 million to write-off its $5 million investment in TCA and
to establish a reserve of $26 million relating to TMCC's $40 million guaranty
of TCA's offshore outstanding debt. TMCC will continue to monitor the
situation in Argentina.
Operating and Administrative Expenses
- -------------------------------------
Operating and administrative expenses increased 19% for the year ended March
31, 2002 as compared to the year ended March 31, 2001, 22% in the six months
ended March 31, 2001 as compared to the six months ended March 31, 2000, and 6%
for the year ended September 20, 2000 as compared to the year ended September
30, 1999, respectively. The increase in fiscal 2002 reflects costs associated
with the field operations restructuring, technology-related projects as well as
costs to support the Company's growing customer base. The increases noted in
the transition period and fiscal 2000 also reflect expenses associated with
technology-related projects and costs to support TMCC's growing customer base.
Included in operating and administrative expenses are charges allocated by TMS
for certain technological and administrative services provided to TMCC.
During the year ended March 31, 2002, the six months ended March 31, 2001 and
2000, and for fiscal 2000, net charges reimbursed by TMCC to TMS totaled
$51 million, $27 million, $13 million and $25 million, respectively. Net
charges to be reimbursed by TMCC to TMS during fiscal 2003 are estimated to
range between $45 million and $55 million.
The Credit Support Fee Agreement entered into between TMCC and TFSC provides
that TMCC will pay to TFSC a semi-annual fee equal to 0.05% per annum of the
weighted average outstanding amount of TMCC's Securities entitled to credit
support, as described under Item 1. Credit support fees included in operating
and administrative expenses for the year ended March 31, 2002 and the six
months ended March 31, 2001 were $12 million and $6 million, respectively, and
expenses for fiscal 2003 are estimated to be $13 million.
-26-
Restructuring and Related Activities
Operating and administrative expenses are also expected to increase during
fiscal 2003 as a result of the costs incurred in connection with the continued
restructuring of TMCC's field operations. The branch offices of TMCC are
being converted to serve only dealer financing needs which includes the
purchasing of contracts from dealers, financing inventories, loans to dealers
for business acquisitions, facilities refurbishment, real estate purchases and
working capital requirements, as well as consulting on finance and insurance
operations. The other functions that the branch offices currently cover, such
as customer service, collections, lease termination and administrative
functions for retail and lease contracts, will be handled by three regional
customer service centers. The regional center for the Western region was
opened in October 2001. The regional center for the Eastern region opened in
February 2002, and the transfer of the other functions from branches to the
regional center for the Midwest region is scheduled to continue during the
summer of 2002. The conversion of these activities is expected to be
completed in fiscal 2003.
Restructuring and related charges of $23.4 million and $6.0 million were
expensed during the periods ending March 31, 2002 and March 31, 2001,
respectively. The expenses charged in the period ending March 31, 2002 were
comprised of $9.1 million related to employee separations, $7.2 million
related to asset and facility costs and $7.1 million for other exit costs.
The expenses charged in the period ended March 31, 2001 were comprised
entirely of employee separation costs.
During fiscal 2002 TMCC experienced an increase in delinquency and charge off
rates as a result of the disruption to normal collections processes during the
field reorganization. TMCC is taking measures to minimize the disruption of
operations; however, the restructuring of field operations could continue to
adversely affect delinquencies and credit losses. Management believes that
the impact of the restructuring has been accurately factored into the
provision for credit losses. Upon the completion of the field reorganization
and strategic deployment of resources, the Company hopes to derive greater
internal operation efficiencies and superior dealer and customer account
management.
Provision for Credit Losses
- ---------------------------
TMCC maintains allowances to cover estimated losses on its present owned
portfolio resulting from the inability of customers to make required payments.
The allowance for credit losses is evaluated quarterly, considering historical
trends of repossession, charge-offs, recoveries and credit losses. In
addition, portfolio credit quality, and current and projected economic and
market conditions, are monitored and taken into account. After carefully
evaluating these factors, management develops several loss scenarios and
reviews allowance levels to ensure reserves are adequate to cover the probable
range of losses. The allowance for credit losses is considered by management
to be appropriate in relation to the expected loss experience on the present
owned portfolio. Losses are charged to the allowance when it has been
determined that payments will not be received and collateral cannot be
recovered or the related collateral is repossessed and sold. Any shortfall
between proceeds received and the carrying cost of repossessed collateral is
charged to the allowance. Recoveries are credited to the allowance for credit
losses. The allowance for credit losses and related provision expense are
included in finance receivables, net and investment in operating leases, net in
the Consolidated Balance Sheet and total expenses in the Consolidated Statement
of Income, respectively.
-27-
The allowance for credit losses increased for the year ended March 31, 2002 as
compared to the year ended March 31, 2001 due to an increase in the provision
for credit losses, partially offset by an increase in net charge-offs. TMCC's
provision for credit losses increased 60% for the year ended March 31, 2002 as
compared to the year ended March 31, 2001, 48% during the transition period and
63% during fiscal 2000 compared to fiscal 1999, reflecting growth in earning
assets and, in 2002, increased credit losses and delinquencies as discussed
below. Allowances for credit losses are evaluated quarterly, considering
historical loss experience and other factors, and are considered adequate to
cover expected credit losses as of March 31, 2002.
TMCC completed the national launch of a tiered pricing program for both retail
and lease vehicle contracts during the transition period ended March 31, 2001.
The objective of the program is to better match customer risk with contract
rates charged to allow profitable purchases of a wider range of risk levels.
Implementation of this program has contributed to increased average contract
yields and increased credit losses in connection with purchases of higher risk
contracts.
An analysis of credit losses and the related allowance follows. This analysis
includes receivables sold through securitizations that qualify as a sale for
legal but not accounting purposes, but excludes net losses on receivables sold
through securitization transactions that qualify as a sale for legal and
accounting purposes, under SFAS 140:
Years Six Months Years
Ended Ended Ended
March 31, March 31, September 30,
----------------- --------- ----------------------------
2002 2001(1) 2001 2000 1999 1998
------ ------ ------ ------ ------ ------
(Dollars in Millions)
Allowance for credit losses
at beginning of period......... $ 227 $ 214 $ 230 $ 202 $ 220 $ 213
Provision for credit losses....... 263 164 89 135 83 127
Charge-offs....................... (190) (134) (75) (116) (104) (120)
Recoveries........................ 20 19 9 19 17 17
Other Adjustments................. (37) (36) (26) (10) (14) (17)
------ ------ ------ ------ ------ ------
Allowance for credit losses
at end of period............... $ 283 $ 227 $ 227 $ 230 $ 202 $ 220
====== ====== ====== ====== ====== ======
Allowance for credit losses
as a percent of gross
earning assets................. .90% .85% .85% .87% .89% 1.02%
Net credit losses as a percent
of average earning assets...... .59% .44% .50% .39% .40% .51%
Aggregate balances at end of
period for finance receivables
and operating leases 60
or more days past due.......... $126 $56 $56 $54 $35 $30
Aggregate balances at end of
period for finance receivables
and operating leases 60 or more
days past due as a percent
of net investments in operating
leases and gross receivables
outstanding.................... .40% .21% .21% .20% .15% .14%
(1) Pro Forma
-28-
As a result of increased credit losses and delinquencies, TMCC increased the
allowance for credit losses as a percent of gross earning assets at March 31,
2002 as compared to March 31, 2001. TMCC believes that the increased credit
losses and delinquencies are primarily due to the recent national economic
downturn, the introduction of the tiered pricing program, and the effects of
TMCC's field reorganization which has temporarily disrupted normal collection
activities. The decrease in the allowance for credit losses as a percent of
gross earning assets from September 2000 to March 2001 primarily reflects
significant growth in vehicle wholesale earning assets which historically have
experienced minimal credit losses.
Net credit losses as a percent of average earning assets for the year ended
March 31, 2002 as compared with the year ended March 31, 2001, also increased
as a result of the recent economic downturn, tiered pricing and field
reorganization described above. Net credit losses as a percent of average
earning assets from September 2000 to March 2001 increased due to a
deterioration in economic conditions.
Delinquency and charge-off ratios typically fluctuate over time as a portfolio
matures. The information in the table above has not been adjusted to
eliminate the effect of the growth of TMCC's portfolio. During the year ended
March 31, 2002, TMCC's portfolio has experienced significantly increased
delinquency rates. Repossession and credit loss experience has also increased
during the same period. TMCC believes that the increased delinquency
experience is a result of a number of factors including the recent national
economic downturn, a full fiscal year under the tiered pricing program, and
the effects of TMCC's field reorganization described previously. The
reorganization is ongoing and the transfer of certain functions from branches
to customer service centers is scheduled to continue during the summer of
2002. TMCC is taking measures to minimize the disruption of operations;
however, the restructuring of field operations and economic downturn could
continue to adversely affect delinquencies and credit losses. Management has
increased the allowance for credit losses by $56 million from March 31, 2001
to March 31, 2002 and believes that it is adequate at March 31, 2002.
Insurance Losses and Loss Adjustment Expenses
- ---------------------------------------------
The liability for losses and loss expenses represents the accumulation of
estimates for reported losses and a provision for losses incurred but not
reported, including claim adjustment expenses. Loss reserve projections are
used to estimate loss reporting patterns, loss payment patterns and ultimate
claim costs. An inherent assumption in such projections is that historical
loss patterns can be used to predict future patterns with reasonable accuracy.
Because many variables can affect past and future loss patterns, the effect of
changes in such variables on the results of loss projections must be carefully
evaluated. The evaluation of these factors involves significant assumptions,
complex analysis and management judgment, which may significantly impact the
financial statements. Insurance liabilities are, therefore, necessarily based
on estimates, and the ultimate liability may vary from such estimates. These
estimates are regularly reviewed by management and adjustments to such
estimates are included in income on a current basis. The liability for
reported losses and the estimate of unreported losses are recorded in accounts
payable and accrued expenses. Commissions and fees from services provided are
recognized in relation to the timing and level of services performed.
Concentration of Credit Risk
- ----------------------------
The Company's business is substantially dependent upon the sale of Toyota and
Lexus vehicles in the United States. Changes in the volume of sales of such
vehicles resulting from governmental action, changes in consumer demand,
changes in pricing of imported units due to currency fluctuations, or other
events, could impact the level of finance and insurance operations of the
Company. To date, the level of sales of Toyota and Lexus vehicles has not
restricted the level of the Company's operations.
-29-
The Company's finance receivables reflect a broad customer base of 1,512,000
accounts and are geographically diversified throughout the United States with
the exception of California and Texas. As of March 31, 2002, approximately 25%
and 8% of the Company's retail finance and lease receivables are concentrated
in California and Texas, respectively. The average retail customer account
outstanding was $19,000 as of March 31, 2002. Any material adverse changes to
California's or Texas' economy could have an adverse effect on TMCC's financial
condition and results of operations.
TMCC's wholesale and other dealer financing receivables, such as revolving
credit lines and real estate and working capital loans, arise from transactions
with individual dealers or national dealer groups. As of March 31, 2002, the
25 largest outstanding total dealer receivables, aggregating approximately $1.5
billion, represent approximately 45% of total dealer receivables and 5% of
total earning assets. All of these receivables were current as of March 31,
2002.
The majority of dealer financing receivables outstanding as of March 31, 2002
is secured by vehicle inventory, real estate, or other assets. Receivables not
secured by assets are generally secured by corporate or individual guarantees.
Any material adverse change in the business or financial condition of a dealer
or dealer group to whom TMCC has extended a substantial amount of financing, or
financing which is unsecured or not secured by realizable assets, could result
in a material adverse effect on TMCC's financial conditions and results of
operations.
Sales of Receivables and Securitization
- ---------------------------------------
Many finance companies and banks use securitization transactions to fund their
operations. The United States securitization market is well developed and
highly liquid. TMCC has been an active participant in the asset-backed
securitization market since 1993, securitizing both retail and lease finance
receivables. TMCC's current securitization program involves only retail
finance receivables.
Typical Securitization Structure
TMCC's securitization program involves selling discrete pools of finance
receivables or interests in lease receivables to a wholly-owned bankruptcy
remote special purpose entity ("SPE"), which in turn sells the receivables to
a separate securitization trust in exchange for the proceeds from securities
issued by the trust. The securities issued by the trust, usually notes or
certificates of various maturities and interest rates, are secured by
collections on the sold receivables. These securities, commonly referred to as
asset-backed securities, are structured into senior and subordinated classes.
Generally, the senior classes have priority over the subordinated classes in
receiving collections from the sold receivables.
-30-
The SPE uses the proceeds received from the securitization trust to pay TMCC
for a portion of the purchase price for the receivables. The remainder is
typically represented by a promissory note from the SPE. The SPE also retains
an interest in the securitization trust. The retained interest may include
subordinated securities issued by the SPE, restricted cash held for the
benefit of the SPE and an interest-only strip. Most retained interests are
subordinated and serve as credit enhancements for the more senior securities
issued by the SPE to help ensure that adequate funds will be available to pay
investors that hold senior securities. The SPE uses the distributions it
receives from the securitization trust to repay the promissory note to TMCC.
However, the retained interests are held by the SPE as restricted assets and
are not available to satisfy any obligations of TMCC. The SPE's ability to
realize on its retained interests, and thus repay TMCC, depends on actual
credit losses and prepayment speeds on the sold receivables. To the extent
prepayment speeds are faster than expected and/or losses are greater than
expected, TMCC may be required to recognize a loss in respect of the retained
interests. The Company's retained interests in such receivables are included
in investments in marketable securities and are classified as available for
sale. TMCC retains servicing rights for sold receivables and receives a
servicing fee which is recognized over the remaining term of the related sold
retail receivables or interests in lease finance receivables.
Income earned from the sale of the receivables includes the gain or loss on
sale of finance receivables, as well as servicing fee income, the interest
income earned on retained securities and excess spread. The sale of
receivables has the effect of reducing financing revenues in the year the
receivables are sold as well as in future years. The net impact of
securitizations on annual earnings will include income effects in addition to
the reported gain or loss on the sale of receivables and will vary depending
on the amount, type of receivable and timing of our securitizations in the
current year and the preceding two to three year period as well as the
interest rate environment at the time the finance receivables were originated
and securitized. Pre-tax gains on sold retail receivables are recognized in
the period in which the sale occurs and are included in other income. The
determination of gains and the valuation of retained interests are based on an
allocation of the cost of the sold receivables between the portion sold and
the portion retained using the relative fair values on the date of sale. The
fair value of the retained interests is estimated by discounting expected cash
flows using management's best estimates and other key assumptions. The
selection of assumptions involves complex analysis and management judgment
which, when changed, may significantly impact the financial statements.
The increased use of securitization, coupled with the decline in interest
rates during fiscal years 2002 and 2001, led to higher reported gains on sold
receivables compared with prior years. In addition to the increase in gains
during fiscal years 2002 and 2001, interest earned on retained assets and
servicing fees also increased due to the increased use of securitization.
Various forms of credit enhancements also are provided to reduce the risk of
loss for senior classes of securities. These credit enhancements may include
the following or other forms designed for particular transactions:
Over-collateralization: The principal balance of receivables held by the
securitization trust exceeds the principal amount of asset-backed
securities issued. In addition, the receivables earn a higher rate of
interest than the rate due on the securities, which is referred to as
excess spread and is recorded as an interest-only strip and is included
in investments in marketable securities on the consolidated balance
sheet. As a result of over-collateralization, the SPE, pursuant to its
retained interest, has the right to receive collections on the sold
receivables in excess of amounts needed to pay interest and principal to
investors and servicing and other fees.
Cash reserve funds or restricted cash: A portion of the proceeds from the
sale of asset-backed securities are held in segregated reserve funds and
may be used to pay principal and interest to investors if collections on
the sold receivables are insufficient. Additional excess amounts from
collections on receivables held by the securitization trusts may be added
to such reserve funds during the term of the securitizations.
-31-
Subordinated securities: Generally these securities do not receive
payments of principal until more senior securities are paid, and may be
subordinated to payments of interest as well.
Revolving liquidity note: In lieu of a cash reserve fund to fund
shortfalls in principal and interest payments to security holders, TMCC
may undertake to advance funds in respect of certain shortfalls and
losses, taking a revolving liquidity note in return which allows the
securitization trust to receive draws from TMCC to fund shortfalls in
principal and interest payments due to investors up to a specified amount
and obligates the securitization trust to repay any amounts drawn with
interest accrued thereon. Repayments of principal and interest due
under the revolving liquidity note are subordinated to principal and
interest payments on the asset-backed securities and, in some
circumstances, to deposits into a reserve account. To the extent amounts
are insufficient to repay amounts outstanding under a revolving liquidity
note, TMCC may recognize a loss.
TMCC may enter into a swap agreement with the securitization trust under which
the securitization trust is typically obligated to pay TMCC amounts in U.S.
dollars in respect of interest and/or principal due on specified dates in
exchange for receiving from TMCC amounts equal to the principal and interest
payable on the asset backed securities in the relevant currency. This
arrangement enables the securitization trust to issue securities payable in
currencies other than U.S. Dollars or bearing interest on a basis different
from that of the receivables held by the securitization trust.
TMCC typically uses an amortizing structure in its securitizations. In most
amortizing structures, holders of the asset-backed securities receive monthly
payments of principal and interest and therefore the outstanding principal
balance of the securities is repaid as principal collections on the sold
receivables are received. In some cases, TMCC's securitizations have involved
a modified structure in which principal payments are invested in demand notes
issued by TMCC instead of being paid to investors. Upon the maturity of the
demand notes, the trust uses the proceeds to repay the principal of the
securities.
Sale Accounting Treatment
TMCC's securitizations have been treated as a sale for both legal and
accounting purposes, except for the 2001-C transaction which occurred in
September 2001. This securitization was treated as a sale for legal purposes,
but treated as a secured borrowing for accounting purposes since the
securitization trust was not structured as a qualifying special purpose entity
("QSPE"). The receivables and debt issued were accounted for as remaining on
TMCC's balance sheet pursuant to Financial Accounting Standards Board
Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities" ("SFAS 140"), as amended.
Purpose of Securitization Program
TMCC securitizes its receivables because it allows the Company to access a
highly liquid and efficient market for securitization of financial assets
thereby providing the Company with an alternative source of funding, and
diversification of its investor base to enhance its liquidity position. For
the past three fiscal years, securitization averaged approximately 24% of
total annual funding. TMCC's use of SPEs in securitizations is consistent
with conventional practices in the securitization markets. The sale to the SPE
isolates the sold receivables from other creditors of TMCC for the benefit of
securitization investors and, assuming accounting requirements are satisfied,
the sold receivables are accounted for as no longer on the Company's balance
sheet. None of TMCC's officers, directors or employees holds any equity
interests in TMCC's SPEs or receives any direct or indirect compensation from
the SPEs. The SPEs do not own the Company's stock or stock of any of the
Company's affiliates and there are no contracts to do so.
-32-
The asset-backed securities are rated by at least two independent rating
agencies and sold in registered public offerings or in private transactions
exempt from registration under United States securities laws. The value of
the interests retained by the trust is exposed to losses in receivables and
such cash flows are available as credit support for senior securities. The
exposure of these interests exists until the associated securities are paid in
full. Investors in securitizations have no recourse to TMCC or its assets for
failure of obligations on the receivables or otherwise and have no ability to
require TMCC to repurchase their securities. TMCC does not guarantee any
securities issued by the SPE.
Each SPE has limited purposes and may only be used to purchase and sell the
receivables. The individual securitization trusts have a limited duration and
generally terminate when investors holding the asset-backed securities have
been paid all amounts owed to them.
The sale of receivables through securitization is further discussed in Note 7
of the Notes to Consolidated Financial Statements.
Derivatives and Hedging Activities
- ----------------------------------
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133") requires companies to record
derivatives on the balance sheet as assets and liabilities, measured at fair
value. Fair value is determined using externally quoted market values where
possible. If externally quoted market rates are not available, the Company
uses external market rates in conjunction with a customized market valuation
system to determine the fair value of the Company's derivatives. Derivative
assets and liabilities include interest rate swaps, indexed note swap
agreements, cross currency interest rate swap agreements and option-based
products. The accounting for the gain or loss due to changes in fair value of
the hedged item depends on whether the relationship between the hedged item and
the derivative instrument qualifies for hedge treatment. If the relationship
between the hedged item and the derivative instrument does not qualify as a
hedge, the gains or losses are reported in earnings when they occur. However,
if the relationship between the hedged item and the derivative instrument
qualifies as a hedge, the accounting varies based on the type of risk being
hedged. The types of instruments that do not qualify for hedge accounting
include, but are not limited to, U.S. basis swap instruments, and currency
structured transactions including inverse floating rate instruments.
Derivatives are recognized in the balance sheet at their fair value. On the
date that the Company enters into a derivative contract, it designates the
derivative as a hedge of the fair value of a recognized asset or liability or a
foreign-currency fair-value hedge (a "foreign currency hedge"). Changes in the
fair value of a derivative that is highly effective as - and that is designated
and qualifies as - a fair-value hedge or foreign-currency hedge, along with
changes in fair value of the hedged assets or liabilities that are attributable
to the hedged risk, are recorded in current-period earnings. Additional
information concerning the SFAS No. 133 requirements is disclosed in Note 8 -
Derivatives and Hedging Activities of the Notes to Consolidated Financial
Statements and Note 2 - Summary of Significant Accounting Policies - Derivative
Financial Instruments.
-33-
For the year ended March 31, 2002, the Company recognized a gain of
$38 million (reported as SFAS 133 fair value adjustments in the Consolidated
Statement of Income). The net adjustment reflects a gain of $43 million in
the fair market value of TMCC's portfolio of option-based products and certain
interest rate swaps, offset by a $5 million decrease related to the
ineffective portion of TMCC's fair value hedges. The increase in the fair
market value of TMCC's option-based products is primarily due to higher market
interest rates. Various derivative instruments, such as option-based products
which hedge interest rate risk from an economic perspective, and which the
Company is unable or has elected not to apply hedge accounting, are discussed
in Non-Hedging Activities below. For fair value hedging relationships, the
components of each derivative's gain or loss are included in the assessment of
hedge effectiveness.
TMCC maintains an overall risk management strategy that utilizes a variety of
interest rate and currency derivative financial instruments to mitigate its
economic exposure to fluctuations caused by volatility in interest rate and
currency exchange rates. TMCC does not use any of these instruments for trading
purposes.
Accounting for Derivatives and Hedging Activities
Derivatives are recognized in the balance sheet at their fair value. On the
date that the Company enters into a derivative contract, it designates the
derivative as a hedge of the fair value of a recognized asset or liability or a
foreign-currency fair-value hedge (a "foreign currency hedge"). Changes in the
fair value of a derivative that is highly effective as - and that is designated
and qualifies as - a fair-value hedge or foreign-currency hedge, along with
changes in fair value of the hedged assets or liabilities that are attributable
to the hedged risk, are recorded in current-period earnings.
The Company occasionally purchases a financial instrument in which a derivative
instrument is "embedded." Upon purchasing the financial instrument, the
Company assesses whether the economic characteristics of the embedded
derivative are clearly and closely related to the economic characteristics of
the remaining component of the financial instrument (i.e. host contract) and
whether a separate, non-embedded instrument with the same terms as the embedded
instrument would meet the definition of a derivative instrument. When it is
determined that (1) the embedded derivative possesses economic characteristics
that are not clearly and closely related to the economic characteristics of the
host contract and (2) a separate, stand-alone instrument with the same terms
would qualify as a derivative instrument, the embedded derivative is separated
from the host contract, carried at fair value, and designated as either (1) a
fair-value hedge or (2) non-hedging derivative instrument. However, if the
entire contract were to be measured at fair value, with changes in fair value
reported in current earnings, or if the Company could not reliably identify and
measure the embedded derivative for purposes of separating that derivative from
its host contract, the entire contract would be carried on the balance sheet at
fair value and not be designated as a hedging instrument.
The Company formally documents relationships between hedging instruments and
hedged items, as well as its risk-management and strategy for undertaking
various hedge transactions. This process includes linking derivatives that are
designated as fair-value hedges to specific liabilities on the balance sheet.
The Company also assesses whether the derivatives that are used in hedging
transactions have been highly effective in offsetting changes in the fair value
of hedged items and whether those derivatives may be expected to remain highly
effective in future periods. When it is determined that a derivative is not
(or has ceased to be) highly effective as a hedge, the Company discontinues
hedge accounting prospectively, as discussed below.
The Company will discontinue hedge accounting prospectively when (1) it
determines that the derivative is no longer effective in offsetting changes in
the fair value of a hedged item; (2) the derivative expires or is sold,
terminated, or exercised; or (3) management determines that designating the
derivative as a hedging instrument is no longer appropriate.
-34-
When hedge accounting is discontinued due to the Company's determination that
the derivative no longer qualifies as an effective fair-value hedge, the
Company will continue to carry the derivative on the balance sheet at its fair
value but cease to adjust the hedged liability for changes in fair value. In a
situation in which hedge accounting is discontinued and the derivative remains
outstanding, the Company will carry the derivative at its fair value on the
balance sheet, recognizing changes in the fair value in current-period
earnings.
Fair-Value Hedges
The Company enters into interest rate swaps, indexed note swap agreements and
cross currency interest rate swap agreements to convert its fixed-rate debt to
variable-rate debt, a portion of which is covered by option-based products.
(Refer to non-hedging activities below for a discussion of option-based
products.)
TMCC uses interest rate swap agreements in managing its exposure to interest
rate fluctuations. Interest rate swap agreements are executed as an integral
part of specific debt transactions or on a portfolio basis. TMCC's interest
rate swap agreements involve agreements to pay fixed and receive a floating
rate, or receive fixed and pay a floating rate, at specified intervals,
calculated on an agreed-upon notional amount. Interest rate swap agreements
may also involve basis swap contracts which are agreements to exchange the
difference between certain floating interest amounts, such as the net payment
based on the commercial paper rate and the London Interbank Offered Rate
("LIBOR"), calculated on an agreed-upon notional amount.
TMCC uses indexed note swap agreements in managing its exposure in connection
with debt instruments whose interest rate and/or principal redemption amounts
are derived from other underlying indices. Indexed note swap agreements
involve agreements to receive interest and/or principal amounts associated
with the indexed notes, denominated in either U.S. dollars or a foreign
currency, and to pay fixed or floating rates on fixed U.S. dollar liabilities.
TMCC uses cross currency interest rate swap agreements to entirely hedge
exposure to exchange rate fluctuations on principal and interest payments for
borrowings denominated in foreign currencies and for managing its exposure to
interest rate fluctuations. Notes and loans payable issued in foreign
currencies are hedged by concurrently executed cross currency interest rate
swap agreements which involve the exchange of foreign currency principal and
interest obligations for U.S. dollar obligations at agreed-upon currency
exchange and interest rates.
Derivative instruments used by TMCC involve, to varying degrees, elements of
credit risk in the event a counterparty should default and market risk as the
instruments are subject to rate and price fluctuations. Credit risk is
managed through the use of credit standard guidelines, counterparty
diversification, monitoring of counterparty financial condition and master
netting agreements in place with all derivative counterparties. Credit
exposure of derivative instruments is discussed further under Item 7A. -
Quantitative and Qualitative Disclosures About Market Risk.
Non-Hedging Activities
Option-based products are executed on a portfolio basis and consist primarily
of purchased interest rate cap agreements, interest rate swaps and, to a lesser
extent, foreign exchange forward contract agreements. Option-based products
are agreements which either grant TMCC the right to receive, or require TMCC to
make payments at, specified interest rate levels. Option-based products are
used to hedge interest rate risk from an economic perspective on TMCC's
portfolio of pay-variable receive-fixed interest rate swaps.
The Company uses this strategy to minimize its exposure to volatility in LIBOR
and for overall asset and liability management purposes. These products are
not linked to specific assets and liabilities that appear on the balance sheet
and therefore, do not qualify for hedge accounting.
-35-
LIQUIDITY AND CAPITAL RESOURCES
The Company, in the normal course of business, is an active debt issuer and
requires a substantial amount of funding to support the growth in earning
assets. The objective of its liquidity management is to ensure the Company has
the ability to maintain access to the capital markets to meet its obligations
and other commitments on a timely and cost-effective basis. Significant
reliance is placed on the Company's ability to obtain debt and asset-backed
securitization funding in the capital markets in addition to funding provided
by earning asset liquidations and cash provided by operating activities. Debt
issuances have generally been in the form of commercial paper, and domestic and
euro medium-term notes ("MTNs") and bonds.
Commercial paper issuances are used to meet short-term funding needs.
Commercial paper outstanding under TMCC's commercial paper program ranged from
approximately $3.0 billion to $5.7 billion during the year ended March 31,
2002, with an average outstanding balance of $4.4 billion.
For additional liquidity purposes, TMCC maintains syndicated bank credit
facilities with certain banks which aggregated $3.5 billion at March 31, 2002.
No loans were outstanding under any of these bank credit facilities as of
March 31, 2002. TMCC maintains additional committed and uncommitted lines of
credit for $40 million and $100 million, respectively. TMCC also maintains
uncommitted, unsecured lines of credit with banks totaling $61 million as of
March 31, 2002. At March 31, 2002 TMCC had issued approximately $0.5 million
in letters of credit in connection with these uncommitted, unsecured lines of
credit.
Long-term funding requirements are met through the issuance of a variety of
debt securities underwritten in both the United States and international
capital markets. Domestic and euro MTNs and bonds have provided TMCC with
significant sources of funding. During the year ended March 31, 2002, TMCC
issued approximately $8.8 billion of domestic and euro MTNs and bonds all of
which except for $.5 billion had original maturities of one year or more.
The original maturities of all MTNs and bonds outstanding at March 31, 2002
ranged from one year to ten years. As of March 31, 2002, TMCC had total MTNs
and bonds outstanding of $21.0 billion, of which $7.0 billion was denominated
in foreign currencies.
TMCC anticipates continued use of MTNs and bonds in both the United States and
international capital markets. To provide for the issuance of MTNs and other
debt securities in the U.S. capital market, the Company maintains a shelf
registration with the SEC under which approximately $10.0 billion was available
for issuance at April 30, 2002. Under TMCC's euro MTN program, which provides
for the issuance of debt securities in the international capital market, the
maximum aggregate principal amount authorized to be outstanding at any time is
$16.0 billion, of which $4.6 billion was available for issuance at April 30,
2002. The United States and euro MTN programs may be expanded from time to
time to allow for the continued use of these sources of funding. In addition,
TMCC may issue bonds in the domestic and international capital markets that are
not issued under its MTN programs.
Additionally, TMCC uses its asset-backed securitization programs to generate
funds for investment in earning assets as described in the above section "Sales
of Receivables and Securitization" and in Note 7 - Sale of Receivables and
Securitization to the Consolidated Financial Statements. TMCC maintains a shelf
registration statement with the SEC relating to the issuance of asset-backed
notes secured by, and certificates representing interests, in retail
receivables. During the year ended March 31, 2002, TMCC sold retail
receivables totaling $4.6 billion in connection with securities issued under
the shelf registration statement. As of April 30, 2002, $3.1 billion remained
available for issuance under the registration statement. Subsequent to that
date, $2.0 billion remained available for issuance under the registration
statement after a sale of retail finance receivables in May 2002.
-36-
Dividends are declared and paid by TMCC as determined by its Board of
Directors. TMCC's Board of Directors declared a cash dividend of $4 million
that was paid to TFSA during fiscal 2002. No dividends had previously been
declared or paid.
TMCC's ratio of earnings to fixed charges was 1.39, 1.10, 1.13, 1.24, 1.25 and
1.31 for the year ended March 31, 2002, the six months ended March 31, 2001 and
for the years ended September 30, 2000, 1999, 1998 and 1997, respectively. The
increase in the ratio during the year ended March 31, 2002 was primarily due to
an increase in finance margin resulting from lower interest rates and higher
earning asset amounts funded.
Cash flows provided by operating, investing and financing activities have been
used primarily to support earning asset growth. Cash provided by the
liquidation and sale of earning assets, totaling $19.6 billion, $14.7 billion,
$23.0 billion and $21.0 billion during the year ended March 31, 2002, the six
months ended March 31, 2001 and the years ended September 30, 2000 and 1999,
respectively, was used to purchase additional investments in operating leases
and finance receivables, totaling $25.7 billion, $15.9 billion, $28.2 billion
and $23.9 billion during the year ended March 31, 2002, the six months ended
March 31, 2001 and the years ended September 30, 2000 and 1999, respectively.
Investing activities resulted in a net use of cash of $6.2 billion, $1.5
billion, $5.1 billion and $3.3 billion for the year ended March 31, 2002, the
six months ended March 31, 2001 and the years ended September 30, 2000 and
1999, respectively, as the purchase of additional earning assets exceeded cash
provided by the liquidation of earning assets. Net cash provided by operating
activities totaled $2.1 billion, $.7 billion, $1.9 billion and $2.3 billion for
the year ended March 31, 2002, the six months ended March 31, 2001 and the
years ended September 30, 2000 and 1999, respectively, and net cash provided by
financing activities totaled $4.6 billion, $0.9 billion, $3.1 billion and $1.1
billion, during the year ended March 31, 2002, the six months ended March 31,
2001 and the years ended September 30, 2000 and 1999, respectively. The
Company believes that cash provided by operating and investing activities as
well as access to domestic and international capital markets, the issuance of
commercial paper, and asset-backed securitization transactions will provide
sufficient liquidity to meet its future funding requirements.
Contractual Obligations and Credit-Related Commitments
As disclosed in the footnotes to the Consolidated Financial Statements, the
Company has certain obligations to make future payments under contracts and
credit-related financial instruments and commitments. At March 31, 2002,
aggregate contractual obligations and credit-related commitments are summarized
as follows:
During the Years Ending
-------------------------------------------------------------
2003 2004 2005 2006 2007 Thereafter
-------- -------- -------- -------- -------- ----------
(Dollars in Millions)
Contractual Obligations:
Premises occupied under lease..... $ 19 $ 14 $ 9 $ 7 $ 4 $ 2
Other senior debt................. $ 5,184 $ 5,360 $ 3,665 $ 2,885 $ 1,252 $ 2,632
Manufacturing facilities
guarantees..................... $ - $ - $ - $ 58 $ - $ 148
International affiliates
Guarantees (b)................. $ 40 $ 4 $ 12 $ - $ - $ -
Revolving liquidity notes......... $ 15 $ (a) $ (a) $ - $ - $ -
-------- -------- -------- -------- -------- --------
$ 5,258 $ 5,378 $ 3,686 $ 2,950 $ 1,256 $ 2,782
======== ======== ======== ======== ======== ========
(a) The securitization trusts may draw a total of $15 million from TMCC under the revolving
liquidity notes over the life of the asset-backed securities transactions.
(b) Amounts represent TMCC's guarantee of debt or other contractual commitments entered into by
TCA, TSV and BTB. Allocation to fiscal years is based on maturity dates specified in
underlying contractual agreements.
-37-
TMCC has also guaranteed the obligations of TMIS relating to vehicle service
insurance agreements issued in four states (Alabama, Illinois, New York and
Virginia). These guarantees have been given without regard to any security,
but are limited to the duration of the underlying insurance coverages up to a
maximum of the original manufacturer's suggested retail price on the vehicles.
As of March 31, 2002, TMCC has not historically, and does not expect, to pay
any amounts under this guarantee.
TMCC also maintains revolving credit facilities with dealers. These revolving
credit facilities may be used for business acquisitions, facilities
refurbishment, real estate purchases and working capital requirements. These
financings are backed by corporate or individual guarantees from or on behalf
of the participating dealers. The revolving credit facilities totaled $1,524
million of which $553 million was outstanding as of March 31, 2002.
Off-Balance Sheet Activities
TMCC's securitization program involves selling discrete pools of finance
receivables or interests in lease receivables to wholly-owned bankruptcy
remote SPEs, which in turn sell the receivables to separate securitization
trusts in exchange for the proceeds from securities issued by the trust. The
securities issued by the trust, usually notes or certificates of various
maturities and interest rates, are secured by collections on the sold
receivables. These securities, commonly referred to as asset-backed
securities, are structured into senior and subordinated classes. Generally,
the senior classes have priority over the subordinated classes in receiving
collections from the sold receivables.
As of March 31, 2002, outstanding debt from asset-backed securitizations and
notes payable related to securitized finance receivables structured as
collateralized borrowings totaled $4.3 billion and $1.0 billion, respectively.
On any payment date, the priority of payments made from available collections
and amounts withdrawn from existing reserve funds or revolving liquidity
notes, are as follows: servicing fee, noteholder interest, allocation of
principal, reserve fund account deposit, and finally, excess amounts.
Therefore, the interests of noteholders are subordinate to the servicer, but
have priority over any deposits in a reserve fund, any draws against existing
revolving liquidity notes, or any excess amounts. In addition, in most cases,
noteholders holding senior classes of notes are paid prior to any existing
subordinate class (some transactions are structured so that the subordinate
tranche is released pro rata with certain senior tranches).
TMCC may enter into swap agreements with the securitization trusts so that
interest rate exposure remains with TMCC, and not the securitization trusts.
This exposure may or may not be mitigated by other swap arrangements entered
into by TMCC, and this is determined by TMCC management. The Company's general
exposure every month, is the notional balance of the security multiplied by
the rate differential. However, in the case of a default by the
securitization trust, the Company's maximum exposure would be the interest due
based on the outstanding notional value of underlying securities paid at the
rate inherent in the swap agreement.
-38-
For the year ended March 31, 2002, the following table summarizes certain cash
flows received from and paid to the securitization trusts:
Year ended
March 31, 2002
-------------------------
Lease Retail
--------- ----------
(Dollars in Millions)
Proceeds from new securitizations........... n/a $4,410.8
Servicing fees received..................... $ 5.4 $ 55.7
Excess interest received from
interest only strips..................... $ 1.8 $ 171.6
Other repurchases of receivables............ $ (7.6) $ (1.5)
Repurchase of lease receivables (b)......... $ (303.6) $ -
Reimbursement of servicer advances.......... $ 18.7 $ 6.9
Maturity advances (a)....................... $ - n/a
Reimbursements of maturity advances (a)..... $ 69.0 n/a
(a) Maturity advances represent the difference between the aggregate amount of
principal collected and available to pay principal of the Certificates,
and the outstanding balance of the Certificates due on targeted maturity
dates. The Company was reimbursed for prior period maturity advances from
principal collections in subsequent months.
(b) Amount represents optional redemptions associated with the maturity of
lease securitizations.
During the year ended March 31, 2002 and the six months ended March 31, 2001,
servicing fee assets in the amounts of $15 million and $17 million, were
recorded in conjunction with retail loan securitizations executed. The
amortized balance of servicing fee assets at March 31, 2002 and 2001, totaled
approximately $17 million and $18 million.
-39-
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995
This report contains "forward looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which include estimates,
projections and statements of the Company's beliefs concerning future events,
business plans, objectives, expected operating results, and the assumptions
upon which those statements are based. Forward looking statements include,
without limitation, any statement that may predict, forecast, indicate or
imply future results, performance or achievements, and are typically
identified with words such as "believe," "anticipate," "expect," "estimate,"
"project," "should," "intend," "will," "may" or words or phrases of similar
meaning. The Company cautions that the forward looking statements involve
known and unknown risks, uncertainties and other important factors that may
cause actual results to differ materially from those in the forward looking
statements, including, without limitation, the following: decline in demand
for Toyota and Lexus products; the effect of economic conditions; the effects
of the September 11, 2001 terrorist attacks; the effect of the current
political, economic and regulatory risk in Argentina; a decline in the market
acceptability of leasing; the effect of competitive pricing on interest
margins; changes in pricing due to the appreciation of the Japanese yen against
the United States dollar; the effect of governmental actions; the effect of
competitive pressures on the used car market and residual values and the
continuation of the other factors causing an increase in vehicle returns and
disposition losses; the continuation of, and if continued, the level and type
of special programs offered by TMS; the ability of the Company to successfully
access the United States and international capital markets; the effects of any
rating agency actions; increases in market interest rates; the monetary
policies exercised by the European Central Bank and other monetary authorities;
increased costs associated with the Company's debt funding or restructuring
efforts; with respect to the effects of litigation matters, the discovery of
facts not presently known to the Company or determination by judges, juries or
other finders of fact which do not accord with the Company's evaluation of the
possible liability from existing litigation; and the ability of the Company's
counterparties to perform under interest rate and cross currency swap
agreements. The risks included here are not exhaustive. New risk factors
emerge from time to time and it is not possible for the Company to predict all
such risk factors, nor to assess the impact such risk factors might have on
the Company's business or the extent to which any factor or combination of
factors may cause actual results to differ materially from those contained in
any forward looking statements. Given these risks and uncertainties,
investors should not place undue reliance on forward looking statements as a
prediction of actual results. The Company will not update the forward looking
statements to reflect actual results or changes in the factors affecting the
forward looking statements.
-40-
New Accounting Standards
- ------------------------
In June 2001, the FASB issued Statement of Financial Accounting Standards No.
143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). This
Statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs and it applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development and (or) the normal operation of a long-lived asset, except for
certain obligations of lessees. Under SFAS No. 143, a company is required to
1) record an existing legal obligation associated with the retirement of a
tangible long-lived asset as a liability when incurred and the amount of the
liability be initially measured at fair value, 2) recognize subsequent changes
in the liability that result from (a) the passage of time and (b) revisions in
either the timing or amount of estimated cash flows and 3) upon initially
recognizing a liability for an asset retirement obligation, an entity shall
capitalize the cost by recognizing an increase in the carrying amount of the
related long-lived asset. SFAS No. 143 is effective for financial statements
issued for fiscal years beginning after June 15, 2002, with earlier application
encouraged. Management does not anticipate that the adoption of SFAS No. 143
will have a material impact on the financial statements.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS No. 144"). The objectives of SFAS 144 are to address significant
issues relating to the implementation of FASB Statement No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" ("SFAS No. 121") and to develop a single accounting model based
on the framework established in SFAS No. 121 for long-lived assets to be
disposed of by sale whether previously held and used or newly acquired. Even
though SFAS No. 144 supersedes SFAS No. 121, it retains the fundamental
provisions of SFAS No. 121 for (1) the recognition and measurement of the
impairment of long-lived assets to be held and used and (2) the measurement of
long-lived assets to be disposed of by sale. SFAS No. 144 supersedes the
accounting and reporting provisions of Accounting Principles Board No. 30
"Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions" ("APB 30") for segments of a business to be disposed
of. However, SFAS 144 retains APB 30's requirement that entities report
discontinued operations separately from continuing operations and extends that
reporting requirement to "a component of an entity" that either has been
disposed of (by sale, abandonment, or in a distribution to owners) or is
classified as "held for sale". SFAS No. 144 also amends the guidance of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements" ("ARB
51") to eliminate the exception to consolidation for a temporarily controlled
subsidiary. The provisions of SFAS No. 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001 and
interim periods within those fiscal years. Management of the Company
anticipates that the adoption of SFAS No. 144 will not have a material effect
on the Company's earnings or financial position.
-41-
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections" ("SFAS No. 145"). The objectives
of SFAS No. 145 are to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. The Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The
provisions of this Statement related to the rescission of Statement 4 will be
applied in fiscal years beginning after May 15, 2002. The provisions related
to Statement 13 will be effective for transactions occurring after
May 15, 2002. All other provisions of the Statement will be effective for
financial statements issued on or after May 15, 2002. Management of the
Company anticipates that the adoption of SFAS No. 145 will not have a material
effect on the Company's earnings or financial position.
-42-
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk is defined as the sensitivity of income and capital to changes in
interest rates, foreign exchange rates and other relevant market rates or
prices. The primary market risk to which TMCC is exposed is interest rate risk
with particular exposure to volatility in LIBOR. Substantially all of our
interest rate risk arises from instruments, positions and transactions entered
into for purposes other than trading. As discussed more fully in Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, TMCC uses a variety of interest rate and currency derivative
financial instruments to manage interest rate and currency exchange exposures.
The total notional amounts of TMCC's derivative financial instruments at March
31, 2002 and 2001 were $43.7 billion and $37.3 billion, respectively.
Derivative financial instruments used by TMCC involve, to varying degrees,
elements of credit risk in the event a counterparty should default and market
risk as the instruments are subject to rate and price fluctuations. Credit
risk is managed through the use of credit standard guidelines, counterparty
diversification, monitoring of counterparty financial condition and master
netting agreements in place with all derivative counterparties. Credit exposure
of derivative financial instruments is represented by the fair value of
contracts with a positive fair value at March 31, 2002 reduced by the effects
of master netting agreements. The credit exposure of TMCC's derivative
financial instruments at March 31, 2002 was $314 million on an aggregate
notional amount of $43.7 billion. Additionally, at March 31, 2002,
approximately 100% of TMCC's derivative financial instruments, based on
notional amounts, were with commercial banks and investment banking firms
assigned investment grade ratings of "A" or better by national rating agencies.
TMCC does not currently anticipate non-performance by any of its counterparties
and has no reserves related to non-performance as of March 31, 2002. TMCC has
not experienced any counterparty default during the year ended March 31, 2002,
the six months ended March 31, 2001 or the year ended September 30, 2000.
TMCC uses a value-at-risk methodology, in connection with other management
tools, to assess and manage the interest rate risk of aggregated loan and lease
assets and financial liabilities, including interest rate derivatives and
option-based products. Value-at-risk represents the potential losses in fair
value for a portfolio from adverse changes in market factors for a specified
period of time and likelihood of occurrence (i.e. level of confidence).
TMCC's value-at-risk methodology incorporates the impact from adverse changes
in market interest rates but does not incorporate any impact from other market
changes, such as foreign currency exchange rates or commodity prices, which do
not affect the value of TMCC's portfolio. The value-at-risk methodology
excludes changes in fair values related to investments in marketable securities
and equipment financing as these amounts are not significant to TMCC's total
portfolio.
The value-at-risk methodology uses seven years of historical interest rate
data to build a database of prediction errors in forward rates for a one month
holding period. These prediction errors are then applied randomly to current
forward rates through a Monte Carlo process to simulate 500 potential future
yield curves. The portfolio is then re-priced with these curves to develop a
distribution of future portfolio values. Options in the portfolio are priced
with current market implied volatilities and the simulated yield curves using
the Black Scholes method. The lowest portfolio value at the 95% confidence
interval is compared with the current portfolio value to derive the value-at-
risk number.
-43-
The value-at-risk and the average value-at-risk of TMCC's portfolio as of the
year ended March 31, 2002 and the six months ended March 31, 2001, measured as
the potential 30 day loss in fair value from assumed adverse changes in
interest rates are as follows:
Average for the
As of Fiscal Year Ending
March 31, 2002 March 31, 2002
------------------ -------------------
Mean portfolio value..................... $4,401.0 million $4,888.0 million
Value-at-risk............................ $44.3 million $82.4 million
Percentage of the mean portfolio value... 1.0% 1.7%
Confidence level......................... 95.0% 95.0%
Average for the
As of Six Months Ending
March 31, 2001 March 31, 2001
------------------ -------------------
Mean portfolio value..................... $4,867.0 million $3,956.0 million
Value-at-risk............................ $108.6 million $116.0 million
Percentage of the mean portfolio value... 2.2% 2.9%
Confidence level......................... 95.0% 95.0%
TMCC's calculated value-at-risk exposure represents an estimate of reasonably
possible net losses that would be recognized on its portfolio of financial
instruments assuming hypothetical movements in future market rates and is not
necessarily indicative of actual results which may occur. It does not
represent the maximum possible loss nor any expected loss that may occur, since
actual future gains and losses will differ from those estimated, based upon
actual fluctuations in market rates, operating exposures, and the timing
thereof, and changes in the composition of TMCC's portfolio of financial
instruments during the year. The decrease in the mean portfolio value from
March 31, 2001 to March 31, 2002 primarily reflects the change in asset yields
in a lower rate environment coupled with a change in the early termination
assumptions for the assets. The decrease in the value-at-risk from March 31,
2001 to March 31, 2002 primarily reflects an increased hedge ratio.
-44-
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
Page
-------
Report of Independent Accountants................................ 46
Consolidated Balance Sheet at March 31, 2002 and 2001............ 47
Consolidated Statement of Income for the year ended
March 31, 2002, the six months ended March 31, 2001, and the
years ended September 30, 2000 and 1999....................... 48
Consolidated Statement of Shareholder's Equity for the year
ended March 31, 2002, the six months ended March 31, 2001
and the years ended September 30, 2000 and 1999............... 49
Consolidated Statement of Cash Flows for the year ended
March 31, 2002, the six months ended March 31, 2001 and the
years ended September 30, 2000 and 1999....................... 50
Notes to Consolidated Financial Statements....................... 51-90
-45-
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholder of
Toyota Motor Credit Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, shareholder's equity and cash flows present
fairly, in all material respects, the financial position of Toyota Motor Credit
Corporation and its subsidiaries at March 31, 2002 and 2001, and the results of
their operations and their cash flows for the year ended March 31, 2002, the
six months ended March 31, 2001 and for each of the two years in the period
ended September 30, 2000 in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As discussed in Note 2 to the consolidated financial statements, effective
October 1, 2000, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities".
/S/ PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
April 10, 2002
-46-
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars in Millions)
March 31,
--------------------------
2002 2001
-------- --------
ASSETS
------
Cash and cash equivalents..................... $ 747 $ 294
Investments in marketable securities.......... 1,100 1,075
Finance receivables, net...................... 22,390 19,216
Finance receivables, net - securitized........ 1,087 -
Investments in operating leases, net.......... 7,631 7,409
Derivative assets............................. 454 379
Other assets.................................. 630 762
Income taxes receivable....................... 221 79
-------- --------
Total Assets............................ $ 34,260 $ 29,214
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
------------------------------------
Notes and loans payable....................... $ 25,990 $ 22,194
Notes payable related to securitized finance
receivables structured as collateralized
borrowings................................. 1,036 -
Derivative liabilities........................ 1,124 1,414
Other liabilities............................. 819 925
Deferred income............................... 861 699
Deferred income taxes......................... 1,679 1,468
-------- --------
Total Liabilities....................... 31,509 26,700
-------- --------
Commitments and Contingencies
Shareholder's Equity:
Capital stock, $l0,000 par value
(100,000 shares authorized; issued
and outstanding 91,500 in 2002 and 2001. 915 915
Retained earnings.......................... 1,820 1,581
Accumulated other comprehensive income..... 16 18
-------- --------
Total Shareholder's Equity.............. 2,751 2,514
-------- --------
Total Liabilities and
Shareholder's Equity................. $ 34,260 $ 29,214
======== ========
See Accompanying Notes to Consolidated Financial Statements.
-47-
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(Dollars in Millions)
Fiscal Six Fiscal
Year Months Years
Ended Ended Ended
March 31, March 31, September 30,
--------- --------- -----------------
2002 2001 2000 1999
------ ------ ------ ------
Financing Revenues:
Leasing................................. $2,479 $1,246 $2,402 $2,397
Retail financing........................ 917 390 768 645
Wholesale and other dealer financing.... 186 124 182 123
------ ------ ------ ------
Total financing revenues................... 3,582 1,760 3,352 3,165
Depreciation on leases.................. 1,580 753 1,440 1,664
Interest expense........................ 1,030 726 1,289 940
SFAS 133 fair value adjustments......... (38) 23 - -
------ ------ ------ ------
Net financing revenues..................... 1,010 258 623 561
Insurance premiums earned and contract
revenues................................ 155 68 138 122
Investment and other income................ 206 130 99 88
Loss on asset impairment................... 70 25 74 19
------ ------ ------ ------
Net financing revenues and other revenues.. 1,301 431 786 752
------ ------ ------ ------
Expenses:
Operating and administrative............ 529 236 400 376
Losses related to Argentine Investment.. 31 - - -
Provision for credit losses............. 263 89 135 83
Insurance losses and loss adjustment
expenses............................. 76 35 81 63
------ ------ ------ ------
Total expenses............................. 899 360 616 522
------ ------ ------ ------
Income before equity in net loss of
subsidiary, income taxes and
cumulative effect of change
in accounting principle................. 402 71 170 230
Equity in net loss of subsidiary........... - - 1 -
Provision for income taxes................. 159 27 65 98
------ ------ ------ ------
Income before cumulative effect of
change in accounting principle.......... 243 44 104 132
Cumulative effect of change in accounting
principle, net of tax benefits.......... - (2) - -
------ ------ ------ ------
Net Income................................. $ 243 $ 42 $ 104 $ 132
====== ====== ====== ======
See Accompanying Notes to Consolidated Financial Statements.
-48-
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
(Dollars in Millions)
Accumulated
Other
Capital Retained Comprehensive
Stock Earnings Income Total
------- -------- ---------- -------
Balance at September 30, 1999.... 915 1,435 15 2,365
------- -------- ---------- -------
Net income for the year ended
September 30, 2000........... - 104 - 104
Dividends........................ - - - -
Change in net unrealized gains
on available-for-sale
marketable securities, net
of tax........................ - - 4 4
------- -------- ---------- -------
Total - 104 4 108
------- -------- ---------- -------
Balance at September 30, 2000.... 915 1,539 19 2,473
Net income for the six months
ended March 31, 2001.......... - 42 - 42
Dividends........................ - - - -
Change in net unrealized gains
on available-for-sale
marketable securities, net
of tax........................ - - (1) (1)
------- -------- ---------- -------
Total - 42 (1) 41
------- -------- ---------- -------
Balance at March 31, 2001........ $ 915 $ 1,581 $ 18 $ 2,514
Net income for the year ended
March 31, 2002................ - 243 - 243
Dividends........................ - (4) - (4)
Change in net unrealized gains
on available-for-sale
marketable securities, net
of tax........................ - - (2) (2)
------- -------- ---------- -------
Total - 239 (2) 237
------- -------- ---------- -------
Balance at March 31, 2002........ $ 915 $ 1,820 $ 16 $ 2,751
======= ======== ========== =======
See Accompanying Notes to Consolidated Financial Statements.
-49-
TOYOTA MOTOR CREDIT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Millions)
Fiscal Six Fiscal
Year Months Years
Ended Ended Ended
March 31, March 31, September 30,
--------- --------- -----------------
2002 2001 2000 1999
------ ------ ------ ------
Cash flows from operating activities:
Net income.......................................... $ 243 $ 42 $ 104 $ 132
------ ------ ------ ------
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting
principles, net.............................. - 2 - -
SFAS 133 fair value adjustments................ (38) 23 - -
Depreciation and amortization.................. 1,556 789 1,557 1,711
Provision for credit losses.................... 263 89 135 83
Gain from sale of finance receivables, net..... (81) (42) (5) (15)
Gain from sale of marketable securities,
net.......................................... (1) (6) (8) (1)
Loss on asset impairment....................... 70 25 74 19
Loss and reserve related to Argentine Investment 31 - - -
(Increase) decrease in other assets............. (109) 219) (58) 125
Increase(decrease) in deferred income taxes.... 197 (15) (68) 173
(Decrease) increase in other liabilities........ (39) 60 199 27
------ ------ ------ ------
Total adjustments................................... 1,849 706 1,826 2,122
------ ------ ------ ------
Net cash provided by operating activities.............. 2,092 748 1,930 2,254
------ ------ ------ ------
Cash flows from investing activities:
Addition to investments in marketable securities.... (1,528) (1,582) (1,409) (705)
Disposition of investments in marketable securities. 1,477 1,378 985 694
Purchase of finance receivables.....................(21,759) (14,587) (25,161) (20,309)
Liquidation of finance receivables.................. 14,370 10,568 19,238 15,802
Proceeds from sale of finance receivables........... 2,958 2,910 1,476 2,042
Addition to investments in operating leases......... (3,990) (1,352) (3,085) (3,577)
Disposition of investments in operating leases...... 2,247 1,177 2,262 3,137
Decrease (increase) in receivable from Affiliate.... - - 644 (396)
------ ------ ------ ------
Net cash used in investing activities.................. (6,225) (1,488) (5,050) (3,312)
------ ------ ------ ------
Cash flows from financing activities:
Proceeds from issuance of notes and loans payable... 10,504 4,172 6,783 6,634
Payments on notes and loans payable................. (6,535) (4,220) (5,582) (4,985)
Net increase (decrease) in commercial paper,
with original maturities less than 90 days....... 617 912 1,909 (567)
------ ------ ------ ------
Net cash provided by financing activities.............. 4,586 864 3,110 1,082
------ ------ ------ ------
Net increase (decrease) in cash and cash equivalents... 453 124 (10) 24
Cash and cash equivalents at the beginning
of the period....................................... 294 170 180 156
------ ------ ------ ------
Cash and cash equivalents at the end of the
period.............................................. $ 747 $ 294 $ 170 $ 180
====== ====== ====== ======
Supplemental disclosures:
Interest paid....................................... $1,027 $750 $1,240 $979
Income taxes paid................................... $91 $121 $22 $17
See Accompanying Notes to Consolidated Financial Statements.
-50-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Nature of Operations
- -----------------------------
Toyota Motor Credit Corporation ("TMCC") provides retail and wholesale
financing, retail leasing and certain other financial services to authorized
Toyota and Lexus vehicle and Toyota industrial equipment dealers and their
customers in the United States (excluding Hawaii), the Commonwealth of Puerto
Rico, Mexico and Venezuela. As of March 31, 2002, TMCC was a wholly-owned
subsidiary of Toyota Financial Services Americas Corporation ("TFSA" or the
"Parent"), a holding company owned 100% by Toyota Financial Services
Corporation ("TFSC"). TFSC, in turn, is a wholly-owned subsidiary of Toyota
Motor Corporation ("TMC"). TFSC was incorporated in July 2000 and its
corporation headquarters is located in Nagoya, Japan. The purpose of TFSC is
to control and manage Toyota's finance operations worldwide.
TMCC has eight wholly-owned subsidiaries, Toyota Motor Insurance Services, Inc.
("TMIS"), Toyota Motor Credit Receivables Corporation ("TMCRC"), Toyota Auto
Finance Receivables LLC ("TAFR"), Toyota Leasing, Inc. ("TLI"), Toyota Credit
de Puerto Rico Corporation ("TCPR"), Toyota Services de Mexico, S.A. de C.V.
("TSM"), TFSM Servicios de Mexico, S.A. de C.V. ("TFSM") and Toyota Services de
Venezuela, C.A. ("TSV"). TMCC and its wholly-owned subsidiaries are
collectively referred to as the "Company". TMIS provides certain insurance
services along with certain insurance and contractual coverages in connection
with the sale and lease of vehicles. In addition, the insurance subsidiaries
insure and reinsure certain Toyota Motor Sales, USA, Inc. ("TMS") and TMCC
risks. TMCRC and TAFR, both limited purpose subsidiaries, operate primarily to
acquire retail finance receivables from TMCC for the purpose of securitizing
such receivables. TLI, a limited purpose subsidiary, operates primarily to
acquire lease finance receivables from TMCC for the purpose of securitizing
such leases. TCPR provides retail and wholesale financing and certain other
financial services to authorized Toyota and Lexus vehicle dealers and their
customers in Puerto Rico. TSM and TFSM provide financing for the import of
vehicles into Mexico. TSV provides financing for distributor sales into
Venezuela.
Toyota Credit Argentina, S.A. ("TCA") provides retail and wholesale financing
to authorized Toyota vehicle dealers and their customers in Argentina. TMCC
owns a 33% interest in TCA. In February 2002, the Argentine government
established measures to re-denominate the entire Argentine economy into pesos
and has permitted the peso to float freely against other global currencies.
This re-denomination policy adversely affected TCA's financial condition and
its ability to fully satisfy its offshore dollar loans. Consequently in the
third quarter of fiscal 2002, TMCC included a charge against income of $31
million to write-off its $5 million investment in TCA and to establish a
reserve of $26 million relating to TMCC's $40 million guaranty of TCA's
offshore outstanding debt. TMCC's investment in TCA is accounted for using the
equity method. TMCC will continue to monitor the situation. Banco Toyota do
Brasil ("BTB") provides retail and lease financing to authorized Toyota vehicle
dealers and their customers in Brazil. BTB is owned 15% by TMCC. TMCC's
investment in BTB is accounted for using the cost method. The remaining
interests in TCA and BTB are owned by TFSC, TMCC's indirect parent.
The Company's earnings are primarily impacted by the level of average earning
assets, comprised primarily of investments in finance receivables and operating
leases, and asset yields as well as outstanding borrowings and the cost of
funds. The Company's business is substantially dependent upon the sale of
Toyota and Lexus vehicles in the United States. Changes in the volume of sales
of such vehicles resulting from governmental action, changes in consumer
demand, changes in pricing of imported units due to currency fluctuations, or
other events could impact the level of finance and insurance operations of the
Company.
-51-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies
- ---------------------------------------------------
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Change in Fiscal Year
- ---------------------
On June 6, 2000, the Executive Committee of the Board of Directors of TMCC
approved a change in TMCC's year-end from September 30 to March 31. The six-
month transition period from October 1, 2000 through March 31, 2001 precedes
the start of the new fiscal year and was reported in the Form 10-K/T filed for
the period ended March 31, 2001. The transition period is also included in
this form 10-K.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of TMCC and its
wholly-owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
Cash and Cash Equivalents
- -------------------------
Cash equivalents, consisting primarily of money market instruments and debt
securities, represent highly liquid investments with original maturities of
three months or less.
Investments in Marketable Securities
- ------------------------------------
Investments in marketable securities consist of debt and equity securities.
Debt securities designated as held-to-maturity are carried at amortized cost
and are reduced to net realizable value for other than temporary declines in
market value. Debt and equity securities designated as available-for-sale are
carried at fair value with unrealized gains or losses included in accumulated
other comprehensive income, net of applicable taxes. Realized investment gains
and losses, which are determined on the specific identification method, are
reflected in income.
Investments in Operating Leases
- -------------------------------
Investments in operating leases are recorded at cost and depreciated on a
straight-line basis, over the lease terms to the estimated residual value.
Revenue from operating leases is recognized on a straight-line basis over the
lease term.
Finance Receivables
- -------------------
Finance receivables are recorded at the present value of the related future
cash flows including residual values for finance leases. Revenue associated
with finance receivables is recognized on a level-yield basis over the contract
term.
-52-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (Continued)
- ---------------------------------------------------
Allowance for Credit Losses
- ---------------------------
TMCC maintains allowances to cover estimated losses on its present owned
portfolio resulting from the inability of customers to make required payments.
The allowance for credit losses is evaluated quarterly, considering historical
trends of repossession, charge-offs, recoveries and credit losses. In
addition, portfolio credit quality, and current and projected economic and
market conditions, are monitored and taken into account. After carefully
evaluating these factors, management develops several loss scenarios and
reviews allowance levels to ensure reserves are adequate to cover the probable
range of losses. The allowance for credit losses is considered by management
to be appropriate in relation to the expected loss experience on the present
owned portfolio. Losses are charged to the allowance when it has been
determined that payments will not be received and collateral cannot be
recovered or the related collateral is repossessed and sold. Any shortfall
between proceeds received and the carrying cost of repossessed collateral is
charged to the allowance. Recoveries are credited to the allowance for credit
losses. The allowance for credit losses and related provision expense are
included in finance receivables, net and investment in operating leases, net in
the Consolidated Balance Sheet and total expenses in the Consolidated Statement
of Income, respectively.
Allowance for Residual Value Losses
- -----------------------------------
The Company also maintains an allowance to cover estimated vehicle disposition
losses related to unguaranteed residuals on its present owned portfolio. The
allowance required to cover estimated residual value losses is evaluated
quarterly, considering projected vehicle return rates and projected residual
value losses derived from historical and market information on used vehicle
sales, historical factors including trends in lease returns, the new car
markets, and general economic conditions. After carefully evaluating these
factors, management develops several loss scenarios and reviews allowance
levels to ensure reserves are adequate to cover the probable range of losses.
The allowance for residual value losses is maintained in amounts considered by
management to be appropriate in relation to the expected losses on the present
owned portfolio. Upon disposal of the assets, the allowance for residual
losses is adjusted for the difference between the net book value and the
proceeds from sale. The allowance for residual value losses and related
provision expense are included in finance receivables, net and investment in
operating leases, net in the Consolidated Balance Sheet and lease depreciation
expense in the Consolidated Statement of Income, respectively.
Deferred Charges
- ----------------
Deferred charges consist primarily of underwriters' commissions and other debt
issuance costs which are amortized to interest expense over the life of the
related instruments on a straight-line basis, which is not materially different
from the effective interest method.
-53-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (Continued)
- ---------------------------------------------------
Derivative Financial Instruments
- --------------------------------
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133") requires companies to record
derivatives on the balance sheet as assets and liabilities, measured at fair
value. Fair value is determined using externally quoted market values where
possible. If externally quoted market rates are not available, the Company
uses external market rates in conjunction with a customized market valuation
system to determine the fair value of the Company's derivatives. Derivative
assets and liabilities include interest rate swaps, indexed note swap
agreements, cross currency interest rate swap agreements and option-based
products. The accounting for the gain or loss due to changes in fair value of
the hedged item depends on whether the relationship between the hedged item and
the derivative instrument qualifies for hedge treatment. If the relationship
between the hedged item and the derivative instrument does not qualify as a
hedge, the gains or losses are reported in earnings when they occur. However,
if the relationship between the hedged item and the derivative instrument
qualifies as a hedge, the accounting varies based on the type of risk being
hedged. The types of instruments that do not qualify for hedge accounting
include, but are not limited to, U.S. basis swap instruments, and currency
structured transactions including inverse floating rate instruments.
Derivatives are recognized in the balance sheet at their fair value. On the
date that the Company enters into a derivative contract, it designates the
derivative as a hedge of the fair value of a recognized asset or liability or a
foreign-currency fair-value hedge (a "foreign currency hedge"). Changes in the
fair value of a derivative that is highly effective as - and that is designated
and qualifies as - a fair-value hedge or foreign-currency hedge, along with
changes in fair value of the hedged assets or liabilities that are attributable
to the hedged risk, are recorded in current-period earnings. Additional
information concerning the SFAS No. 133 requirements is disclosed in Note 8 -
Derivatives and Hedging Activities of the Notes to Consolidated Financial
Statements.
-54-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (Continued)
- ---------------------------------------------------
Derivative Financial Instruments (Continued)
- --------------------------------
The Company occasionally purchases a financial instrument in which a derivative
instrument is "embedded." Upon purchasing the financial instrument, the
Company assesses whether the economic characteristics of the embedded
derivative are clearly and closely related to the economic characteristics of
the remaining component of the financial instrument (i.e. host contract) and
whether a separate, non-embedded instrument with the same terms as the embedded
instrument would meet the definition of a derivative instrument. When it is
determined that (1) the embedded derivative possesses economic characteristics
that are not clearly and closely related to the economic characteristics of the
host contract and (2) a separate, stand-alone instrument with the same terms
would qualify as a derivative instrument, the embedded derivative is separated
from the host contract, carried at fair value, and designated as either (1) a
fair-value hedge or (2) non-hedging derivative instrument. However, if the
entire contract were to be measured at fair value, with changes in fair value
reported in current earnings, or if the Company could not reliably identify and
measure the embedded derivative for purposes of separating that derivative from
its host contract, the entire contract would be carried on the balance sheet at
fair value and not be designated as a hedging instrument.
The Company formally documents relationships between hedging instruments and
hedged items, as well as its risk-management objective and strategy for
undertaking various hedge transactions. This process includes linking
derivatives that are designated as fair-value hedges to specific liabilities on
the balance sheet. The Company also assesses whether the derivatives that are
used in hedging transactions have been highly effective in offsetting changes
in the fair value of hedged items and whether those derivatives may be expected
to remain highly effective in future periods. When it is determined that a
derivative is not (or has ceased to be) highly effective as a hedge, the
Company discontinues hedge accounting prospectively, as discussed below.
The Company will discontinue hedge accounting prospectively when (1) it
determines that the derivative is no longer effective in offsetting changes in
the fair value of a hedged item; (2) the derivative expires or is sold,
terminated, or exercised; or (3) management determines that designating the
derivative as a hedging instrument is no longer appropriate.
When hedge accounting is discontinued due to the Company's determination that
the derivative no longer qualifies as an effective fair-value hedge, the
Company will continue to carry the derivative on the balance sheet at its fair
value but cease to adjust the hedged liability for changes in fair value. In a
situation in which hedge accounting is discontinued and the derivative remains
outstanding, the Company will carry the derivative at its fair value on the
balance sheet, recognizing changes in the fair value in current-period
earnings.
-55-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (Continued)
- ---------------------------------------------------
Insurance Operations
- --------------------
Revenues from providing coverage under various contractual agreements are
recognized over the term of the agreement in relation to the timing and level
of anticipated expenses. Revenues from insurance premiums are earned over the
terms of the respective policies in proportion to estimated claims activity.
Certain costs of acquiring new business, consisting primarily of commissions
and premium taxes, are deferred and amortized over the term of the related
policies on the same basis as revenues are earned. The liability for losses
and loss expenses represents the accumulation of estimates for reported losses
and a provision for losses incurred but not reported, including claim
adjustment expenses. Loss reserve projections are used to estimate loss
reporting patterns, loss payment patterns and ultimate claim costs. An
inherent assumption in such projections is that historical loss patterns can
be used to predict future patterns with reasonable accuracy. Because many
variables can affect past and future loss patterns, the effect of changes in
such variables on the results of loss projections must be carefully evaluated.
The evaluation of these factors involves significant assumptions, complex
analysis and management judgment, which may significantly impact the financial
statements. Insurance liabilities are, therefore, necessarily based on
estimates, and the ultimate liability may vary from such estimates. These
estimates are regularly reviewed by management and adjustments to such are
included in income on a current basis. The liability for reported losses and
the estimate of unreported losses are recorded in accounts payable and accrued
expenses. Commissions and fees from services provided are recognized in
relation to the timing and level of services performed.
Income Taxes
- ------------
TMCC uses the liability method of accounting for income taxes under which
deferred tax assets and liabilities are adjusted to reflect changes in tax
rates and laws in the period such changes are enacted resulting in adjustments
to the current period's provision for income taxes.
The Company files a consolidated federal income tax return with its
subsidiaries. The Company files either separate or consolidated/combined state
income tax returns with Toyota Motor North America ("TMA") or other
subsidiaries of TMCC. State income tax expense is generally recognized as if
the Company filed its tax returns on a stand-alone basis. In those states
where TMCC joins in the filing of consolidated or combined income tax returns,
TMCC is allocated its share of the total income tax expense based on combined
allocation/apportionment factors and separate company income or loss. Based on
an informal state tax sharing agreement with TMA and subsidiaries of the
Company, TMCC pays for its share of the combined income tax expense and is
reimbursed for the benefit of any of its tax basis losses utilized in the
combined state income tax returns.
-56-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (Continued)
- ---------------------------------------------------
Asset-Backed Securitization Transactions
- ----------------------------------------
TMCC periodically sells retail receivables through the limited purpose
subsidiaries TMCRC or TAFR. In 1997 and 1998, TMCC maintained programs to
sell interests in lease finance receivables through the limited purpose
subsidiary TLI. TMCC retains servicing rights for sold receivables and
receives a servicing fee which is recognized over the remaining term of the
related sold retail receivables or interests in lease finance receivables.
TMCRC and TAFR retain subordinated interests in the excess cash flows for these
transactions, certain cash deposits and other related amounts which are held as
restricted assets subject to limited recourse provisions. The Company's
retained interests in such receivables are included in investments in
marketable securities and are classified as available for sale. Pre-tax gains
on sold retail receivables are recognized in the period in which the sale
occurs and are included in other income. The determination of gains and the
valuation of retained interests are based on an allocation of the cost of the
sold receivables between the portion sold and the portion retained using the
relative fair values on the date of sale. The fair value of the retained
interests is estimated using the present value of future expected cash flows,
with market interest rates, discount rates commensurate with the risks
involved, estimated credit losses, credit spreads and prepayment speeds
comprising the key calculation assumptions. Such assumptions are determined
utilizing data obtained from other market participants, where available.
Otherwise, such assumptions are based on historical information or derived
from management's best estimate. Thus, the selection of assumptions involves
complex, subjective judgments which, when changed, may significantly impact
the financial statements.
The Company accounts for its retained interests in accordance with EITF No.
99-20, "Recognition of Interest Income and Impairment on Purchased and
Retained Beneficial Interests in Securitized Financial Assets." Under EITF 99-
20, TMCC recognizes the excess of all cash flows attributable to the
beneficial interest estimated at the acquisition/transaction date (the
"transaction date") over the initial investment as interest income over the
life of the beneficial interest using the effective yield method. As
adjustments to the estimated cash flows are made based upon expected market
conditions, the Company adjusts the rate at which income is earned
prospectively. Additionally, EITF 99-20 provides guidance as to when the
holder of a retained interest must conclude that a decline in value below the
carrying amount is considered permanent impairment. TMCC's policy is that if
a decrease in the estimated future cash flows results in a fair value below
the carrying amount and the decline is considered permanent, then the asset is
written down through earnings (as opposed to other comprehensive income). Any
excess of the carrying amount of the retained interest over its fair value
results in an adjustment to the asset with a corresponding offset to
unrealized gain. Unrealized gains, net of income taxes, related to retained
assets are included in comprehensive income. Management reviews the underlying
assumptions of the residual interests at least on a quarterly basis.
-57-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (Continued)
- ---------------------------------------------------
New Accounting Standards
- ------------------------
In June 2001, the FASB issued Statement of Financial Accounting Standards No.
143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"). This
Statement addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs and it applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development and (or) the normal operation of a long-lived asset, except for
certain obligations of lessees. Under SFAS No. 143, a company is required to
1) record an existing legal obligation associated with the retirement of a
tangible long-lived asset as a liability when incurred and the amount of the
liability be initially measured at fair value, 2) recognize subsequent changes
in the liability that result from (a) the passage of time and (b) revisions in
either the timing or amount of estimated cash flows and 3) upon initially
recognizing a liability for an asset retirement obligation, an entity shall
capitalize the cost by recognizing an increase in the carrying amount of the
related long-lived asset. SFAS No. 143 is effective for financial statements
issued for fiscal years beginning after June 15, 2002, with earlier application
encouraged. Management does not anticipate that the adoption of SFAS No. 143
will have a material impact on the financial statements.
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
("SFAS No. 144"). The objectives of SFAS 144 are to address significant
issues relating to the implementation of FASB Statement No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of" ("SFAS No. 121") and to develop a single accounting model based
on the framework established in SFAS No. 121 for long-lived assets to be
disposed of by sale whether previously held and used or newly acquired. Even
though SFAS No. 144 supersedes SFAS No. 121, it retains the fundamental
provisions of SFAS No. 121 for (1) the recognition and measurement of the
impairment of long-lived assets to be held and used and (2) the measurement of
long-lived assets to be disposed of by sale. SFAS No. 144 supersedes the
accounting and reporting provisions of Accounting Principles Board No. 30
"Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions" ("APB 30") for segments of a business to be disposed
of. However, SFAS 144 retains APB 30's requirement that entities report
discontinued operations separately from continuing operations and extends that
reporting requirement to "a component of an entity" that either has been
disposed of (by sale, abandonment, or in a distribution to owners) or is
classified as "held for sale". SFAS No. 144 also amends the guidance of
Accounting Research Bulletin No. 51, "Consolidated Financial Statements" ("ARB
51") to eliminate the exception to consolidation for a temporarily controlled
subsidiary. The provisions of SFAS No. 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001 and
interim periods within those fiscal years. Management of the Company
anticipates that the adoption of SFAS No. 144 will not have a material effect
on the Company's earnings or financial position.
-58-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 2 - Summary of Significant Accounting Policies (Continued)
- ---------------------------------------------------
New Accounting Standards (Continued)
- ------------------------
In April 2002, the FASB issued Statement of Financial Accounting Standards
No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections" ("SFAS No. 145"). The objectives
of SFAS No. 145 are to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. The Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. The
provisions of this Statement related to the rescission of Statement 4 will be
applied in fiscal years beginning after May 15, 2002. The provisions related
to Statement 13 will be effective for transactions occurring after
May 15, 2002. All other provisions of the Statement will be effective for
financial statements issued on or after May 15, 2002. Management of the
Company anticipates that the adoption of SFAS No. 145 will not have a material
effect on the Company's earnings or financial position.
Reclassifications
- -----------------
Certain 2001 and 2000 amounts have been reclassified to conform with the 2002
presentation.
-59-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Investments in Marketable Securities
- ---------------------------------------------
TMCC records its investments in marketable securities which are designated as
available-for-sale at fair value estimated using quoted market prices or
discounted cash flow analysis. Unrealized gains, net of income taxes, related
to available-for-sale securities are included in comprehensive income.
Securities designated as held-to-maturity are recorded at amortized cost.
The estimated fair value and amortized cost of investments in marketable
securities are as follows:
March 31, 2002
------------------------------------------
Net Net
Fair Unrealized Unrealized
Cost Value Gains Losses
------ ------ ---------- ----------
(Dollars in Millions)
Available-for-sale securities:
Asset-backed securities............. $ 804 $ 827 $ 24 $ (1)
Corporate debt securities........... 110 109 2 (2)
Equity securities................... 129 134 9 (4)
U.S. debt securities................ 23 23 - -
------ ------ ---- -----
Total available-for-sale securities.... $1,066 $1,093 $ 35 $ (7)
==== =====
Held-to-maturity securities:
U.S. debt securities................ 7 7
------ ------
Total marketable securities............ $1,073 $1,100
====== ======
March 31, 2001
------------------------------------------
Net Net
Fair Unrealized Unrealized
Cost Value Gains Losses
------ ------ ---------- ----------
(Dollars in Millions)
Available-for-sale securities:
Asset-backed securities............. $ 823 $ 845 $ 23 $ (1)
Corporate debt securities........... 99 100 2 (1)
Equity securities................... 80 86 9 (3)
U.S. debt securities................ 36 37 1 -
------ ------ ---- -----
Total available-for-sale securities.... $1,038 $1,068 $ 35 $ (5)
==== =====
Held-to-maturity securities:
U.S. debt securities................ 7 7
------ ------
Total marketable securities............ $1,045 $1,075
====== ======
-60-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3 - Investments in Marketable Securities (Continued)
- ---------------------------------------------
The contractual maturities of investments in marketable securities at
March 31, 2002 are as follows:
Available-for-Sale Held-to-Maturity
Securities Securities
-------------------- ----------------
Fair Fair
Cost Value Cost Value
------ ------ ---- -----
(Dollars in Millions)
Within one year......................$ 317 $ 317 $ - $ -
After one year through five years.... 409 430 7 7
After five years through ten years... 82 83 - -
After ten years...................... 129 129 - -
Equity securities.................... 129 134 - -
------ ------ ---- -----
Total.............................$1,066 $1,093 $ 7 $ 7
====== ====== ==== =====
The proceeds from sales of available-for-sale securities were $474 million,
$287 million, $740 million and $562 million for the year ended March 31, 2002,
the six months ended March 31, 2001, and the years ended September 30, 2000 and
1999, respectively. Realized gains on sales of available-for-sale securities
were $5 million, $7 million, $13 million and $6 million for the year ended
March 31, 2002, the six months ended March 31, 2001, and the years ended
September 30, 2000 and 1999, respectively. Realized losses on sales of
available-for-sale securities were $4 million, $1 million, $5 million and $5
million for the year ended March 31, 2002, the six months ended March 31, 2001,
and the years ended September 30, 2000 and 1999, respectively.
-61-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 - Finance Receivables
- ----------------------------
Finance receivables, net and Finance receivables, net - securitized consisted
of the following:
March 31,
-----------------------
2002 2001
-------- --------
(Dollars in Millions)
Retail............................... $ 13,715 $ 9,370
Finance leases....................... 7,692 7,871
Wholesale and other dealer loans..... 3,626 3,619
-------- --------
25,033 20,860
Unearned income...................... (1,340) (1,476)
Allowance for credit losses.......... (216) (168)
-------- --------
Finance receivables, net.......... $ 23,477 $ 19,216
======== ========
Contractual maturities are as follows:
Due in the Wholesale
Years Ending Finance and Other
March 31, Retail Leases Dealer Loans
------------- -------- --------- ------------
(Dollars in Millions)
2003.................. $ 3,513 $ 2,339 $ 2,965
2004.................. 3,377 2,041 86
2005.................. 2,985 1,655 133
2006.................. 2,290 963 148
2007.................. 1,270 694 193
Thereafter............ 280 - 101
------- ------- -------
Total.............. $13,715 $ 7,692 $ 3,626
======= ======= =======
The aggregate balances related to finance receivables 60 or more days past due
totaled $95 million and $29 million at March 31, 2002 and 2001, respectively.
The increased delinquency experience is a result of a number of factors
including the recent national economic downturn, the introduction of the
tiered pricing program, and the effects of TMCC's field reorganization which
has temporarily disrupted normal collection activities. The consolidation is
ongoing and the transfer of certain functions from branches to customer
service centers is scheduled to be completed in fiscal 2003. TMCC is taking
measures to minimize the disruption of operations; however, the restructuring
of field operations and economic downturn could continue to adversely affect
delinquencies and credit losses. A substantial portion of TMCC's finance
receivables have historically been repaid prior to contractual maturity dates;
contractual maturities and future minimum lease payments as shown above should
not be considered as necessarily indicative of future cash collections. The
majority of retail and finance lease receivables do not involve recourse to the
dealer in the event of customer default.
-62-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 - Investments in Operating Leases
- ----------------------------------------
Investments in operating leases, net consisted of the following:
March 31,
-----------------------
2002 2001
-------- --------
(Dollars in Millions)
Vehicles................................. $ 9,011 $ 8,891
Equipment and other...................... 721 689
-------- --------
9,732 9,580
Accumulated depreciation................. (2,034) (2,112)
Allowance for credit losses.............. (67) (59)
-------- --------
Investments in operating leases, net.. $ 7,631 $ 7,409
======== ========
Rental income from operating leases was $1,871 million, $971 million, $2,013
million and $2,185 million for the year ended March 31, 2002, the six months
ended March 31, 2001 and the years ended September 30, 2000 and 1999,
respectively. Future minimum rentals on operating leases for each of the five
succeeding years ending March 31, are: 2003 - $1,594 million; 2004 -
$1,119 million; 2005 - $621 million; 2006 - $157 million; 2007 - $7 million and
thereafter - $400 thousand. A substantial portion of TMCC's operating lease
contracts have historically been terminated prior to maturity; future minimum
rentals as shown above should not be considered as necessarily indicative of
future cash collections.
-63-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Allowance for Credit Losses
- ------------------------------------
An analysis of the allowance for credit losses follows:
Year Six Months Years
Ended Ended Ended
March 31, March 31, September 30,
------------- ------------- -----------------
2002 2001 2000 1999
------ ------ ------ ------
(Dollars in Millions)
Allowance for credit losses at
beginning of period............ $ 227 $ 230 $ 202 $ 220
Provision for credit losses....... 263 89 135 83
Charge-offs....................... (190) (75) (116) (104)
Recoveries........................ 20 9 19 17
Other adjustments................. (37) (26) (10) (14)
------ ------ ------ ------
Allowance for credit losses
at end of period............... $ 283 $ 227 $ 230 $202
====== ====== ====== ======
The increase in the allowance for credit losses for the year ended March 31,
2002 as compared with the six months ended March 31, 2001 and the years ended
September 30, 2000 and 1999, is due to the recent national economic downturn,
the introduction of the tiered pricing program, and the effects of TMCC's
field reorganization which has temporarily disrupted normal collection
activities. The objective of the tiered pricing programs is to better match
customer risk with contract rates charged to allow profitable purchases of a
wider range of risk levels. Implementation of these programs has contributed
to increased average contract yields and increased credit losses in connection
with purchases of higher risk contracts.
Note 7 - Sale of Receivables and Securitization
- -----------------------------------------------
TMCC maintains programs to sell retail receivables through the limited purpose
subsidiaries TMCRC and TAFR. In 1997 and 1998, TMCC maintained programs to
sell interests in lease finance receivables through the limited purpose
subsidiary TLI. TMCC services its securitized receivables and is paid a
servicing fee of 1% of the total principal balance of the outstanding
receivables for both retail and lease securitizations. In a subordinated
capacity, the limited purpose subsidiaries retain excess cash flows, certain
cash deposits and other related amounts, which are held as restricted assets
subject to limited recourse provisions. These restricted assets are not
available to satisfy any obligations of TMCC. Investors in these
securitizations have recourse to the interest-only strips, restricted cash
held by the securitization trusts, any subordinated retained interest, and any
draws against existing revolving liquidity note agreements. The exposure of
these interests exists until the associated securities are paid in full.
Investors do not have recourse to other assets held by TMCC for failure of
obligors on the receivables to pay when due or otherwise. Senior and
subordinated securities are further discussed in Item 7 - Sale of Receivables
and Securitization.
-64-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Sale of Receivables and Securitization (Continued)
- -----------------------------------------------
Following is a summary of amounts included in investment in marketable
securities and other receivables:
March 31,
-------------------
2002 2001
------ ------
(Dollars in Millions)
Interest in trusts........................ $506 $ 527
Interest-only strips...................... 109 129
------ ------
Total................................. $615 $ 656
====== ======
Other Receivables (Restricted cash)........ $ 35 $ 171
====== ======
During the 12 months ended March 31, 2002, TMCC sold retail finance
receivables totaling approximately $4.6 billion to TAFR which in turn sold
them to specific trusts. Some of the classes issued within the securitization
transactions were issued in conjunction with associated swaps. For those
securitization transactions, the securitization trust swapped the fixed rate
interest coupon with TMCC and received a floating interest coupon payable to
the investors.
The pretax gain resulting from the sale of retail receivables totaled
approximately $81 million, $46 million, $5 million and $8 million for the year
ended March 31, 2002, the six months ended March 31, 2001 and for the years
ended September 30, 2000 and 1999, respectively, after providing an allowance
for estimated credit and residual value losses. The pretax gain resulting
from the sale of interests in lease finance receivables totaled approximately
$5 million for the year ended September 30, 1999. Gains on sales of
receivables sold are reported in the accompanying Consolidated Statement of
Income under investment and other income. The gain on sale recorded depends
on the carrying amount of the assets at the time of the sale. The carrying
amount is allocated between the assets sold and the retained interests based
on their relative fair values at the date of the sale. The fair value of
retained interests was estimated by discounting expected cash flows using
management's best estimates and other key assumptions.
Income earned from the sale of the receivables includes the gain or loss on
sale of finance receivables, as well as servicing fee income, the interest
income earned on retained securities and excess spread. The sale of
receivables has the effect of reducing financing revenues in the year the
receivables are sold as well as in future years. The net impact of
securitizations on annual earnings will include income effects in addition to
the reported gain or loss on the sale of receivables and will vary depending
on the amount, type of receivable and timing of our securitizations in the
current year and the preceding two to three year period as well as the
interest rate environment at the time the finance receivables were originated
and securitized.
-65-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Sale of Receivables and Securitization (Continued)
- -----------------------------------------------
The increased use of securitization, coupled with the decline in interest
rates during fiscal years 2002 and 2001, led to higher reported gains on sold
receivables compared with prior years. In addition to the increase in gains
during fiscal years 2002 and 2001, interest earned on retained assets
increased due to the increased use of securitization.
In January 2002, TMCC sold retail finance receivables totaling $1.6 billion.
The Company sold certain finance receivables to TAFR which in turn sold them
to a specific trust. The pretax gain resulting from the sale of these retail
receivables totaled approximately $51.5 million after providing an allowance
for estimated credit losses. As part of the transaction, TMCC entered into a
revolving liquidity note agreement in lieu of a cash reserve fund to fund
shortfalls in principal and interest payments to security holders. The
aggregate amount available under the revolving liquidity note is $7,786,611.
The trust will be obligated to repay amounts drawn and interest will be
accrued at 4.419% per annum. If TMCC's short-term unsecured debt rating falls
below P-1 or A-1+ by Moody's or S&P, respectively, or if TMCC fails to fund
any amount drawn under the revolving liquidity note, the trust is entitled to
draw down the entire undrawn amount of the revolving liquidity note.
Repayments of principal and interest due under the revolving liquidity note
are subordinated to principal and interest payments on the asset backed notes
and, in some circumstances, to deposits into a reserve account.
In September 2001, TMCC securitized retail finance receivables totaling $1.5
billion. This securitization was treated as a sale for legal purposes, but
treated as a secured borrowing for accounting purposes as the securitization
trust was not structured as a qualifying special purpose entity ("QSPE") as
defined pursuant to Financial Accounting Standards Board Statement No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities" ("SFAS 140"). Therefore, the receivables and debt issued
remained on the balance sheet pursuant to SFAS 140, as amended. This
accounting method is referred to as the "portfolio method". Under the
portfolio method, the finance receivables transferred to the securitization
trust and held as collateral for the notes issued to investors are classified
as "Finance receivables, net - securitized". The weighted average annual
percentage rate for these receivables is approximately 8.60%. Due to the
nature of the accounting treatment, neither servicing fee income or excess
interest income is recognized. The $1.1 billion notes issued to investors in
the securitization trust are classified as "Notes payable related to
securitized finance receivables structured as collateralized borrowings". The
weighted average fixed rate equivalent for these payables at March 31, 2002
was approximately 4.47% and had a remaining weighted average life of
approximately 1.30 years. TMCC entered into a revolving liquidity note
agreement in lieu of a cash reserve fund to fund shortfalls in principal and
interest payments to security holders. Any aggregate amount available under
the revolving liquidity note is $7,500,000. The Trust will be obligated to
repay amounts drawn and interest will be accrued at 5.07% per annum. If
TMCC's short-term unsecured debt rating falls below P-1 or A-1+ by Moody's or
S&P, respectively, or if TMCC fails to fund any amount drawn under the
revolving liquidity note, the trust is entitled to draw down the entire
undrawn amount of the revolving liquidity note. Repayments of principal and
interest due under the revolving liquidity note are subordinated to principal
and interest payments on the asset backed notes and, in some circumstances, to
deposits into a reserve account.
-66-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Sale of Receivables and Securitization (Continued)
- -----------------------------------------------
During May 2001, TMCC sold retail finance receivables totaling $1.5 billion
subject to certain limited recourse provisions. TMCC sold its receivables to
TAFR which in turn sold them to a trust. The pretax gain resulting from the
sale of these retail receivables totaled approximately $29.5 million after
providing an allowance for estimated credit losses.
The key economic assumptions used in the calculation of the initial gain on
sale of receivables and the subsequent valuation of the retained interests
include the estimated interest rate environment (in order to project the net
rate earned on the residual interests), severity and rate of credit losses,
and the prepayment speed of the receivables. Management estimates the credit
loss rate based on a number of factors including attributes of the finance
receivables securitized. Attributes considered include the new versus used
contract mix, loan credit scoring, and seasoning of contracts sold. To
determine the prepayment assumption used, management considers prior and
current prepayment speeds of outstanding securitization transactions and
estimated future economic conditions. Discount rates applied to the residual
interests at the point of sale are at current market rates based on an
investment with a similar term and risk associated with the retained interest.
All key assumptions used in the valuation of the retained interests are
reviewed at least quarterly and are revised as deemed appropriate. After
carefully evaluating the factors discussed above, management ensures that the
final assumptions used are adequate to cover probable potential losses or
decreases in cash flows related to the prepayment of assets.
Key economic assumptions used in estimating the fair value of retained
interests at the date of securitization for securitizations completed during
the year ended March 31, 2002 were as follows:
Year ended
March 31, 2002
----------------
Collateral prepayment speed....................... 1.5% ABS
Weighted average life (in years).................. 1.26 - 1.38
Collateral expected credit losses (per annum)..... 0.70%
Discount rate used on residual cash flows......... 8% - 12%
Discount rate used on the subordinated tranche.... 5% - 8%
The outstanding balance of retail finance receivables sold through
securitizations which TMCC continues to service totaled $4.6 billion, $4.1
billion, $1.9 billion and $1.0 billion at March 31, 2002 and 2001, and
September 2001 and 2000 respectively. The outstanding balance of interests in
lease finance receivables sold through securitizations which TMCC serviced
totaled $1.1 billion, $1.9 billion and $3.1 billion at March 31, 2001 and
September 2001 and 2000 respectively. During fiscal year 2002, TLI exercised
its option to repurchase remaining outstanding receivables under all lease ABS
transactions. As of result of the repurchase, there is no outstanding balance
of interests in lease finance receivables as of March 31, 2002.
-67-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Sale of Receivables and Securitization (Continued)
- -----------------------------------------------
TMCC records its retained assets at fair value, which is estimated using a
discounted cash flow analysis. The retained assets are not considered to have
a readily available market value. Any excess of the carrying amount of the
retained interest over its fair value results in an adjustment to the asset
with a corresponding offset to unrealized gain. Unrealized gains, net of
income taxes, related to the retained assets are included in comprehensive
income. If management deems the excess between the carrying value and the
fair value to be unrecoverable, the asset is written down through earnings.
As stated above, the Company evaluates the key economic assumptions used in
the initial valuation of the retained assets and performs a subsequent review
of those assumptions on a quarterly basis. Management reviews the underlying
assumptions of the residual interests at least on a quarterly basis.
TMCC recorded an adjustment to other receivables totaling $70 million, $25
million, $74 million, and $19 million for the year ended March 31, 2002, the
six months ended March 31, 2001 and for the years ended September 30, 2000 and
1999, respectively. Prior to fiscal year 2002, all impairment related to
interest in lease finance receivables. Of the $70 million in impairment
recognized in the fiscal year ended March 31, 2002, $23 million related to
retail finance receivables recognized in the fourth quarter of 2002.
Impairment of retail finance receivables resulted primarily from the Company
experiencing an increase in credit losses as a result of the restructuring of
field operations into regional centers of certain of its servicing operations
that were previously performed in branch offices, tiered pricing, and the
recent national economic downturn. As a result, credit loss assumptions were
adjusted to properly reflect current market conditions. The impairments
associated with the retained interest in lease finance receivables were
recognized when the future undiscounted cash flows of the assets were
estimated to be insufficient to recover the related carrying values resulting
from higher return rates and an increase in vehicle disposition loss
assumptions.
Cumulative static pool losses over the life of the securitizations are
calculated by taking the actual losses (life to date) and expected losses and
dividing them by the original balance of each pool of assets. Actual and
expected static pool credit losses for the retail loan securitizations were
...45% and .61% respectively as of March 31, 2002 and .21% and .52% respectively
as of March 31, 2001. Actual and expected static pool credit losses for the
lease securitizations were 1.74% and 0% respectively as of March 31, 2002 and
1.64% and .12% respectively as of March 31, 2001. Actual and expected residual
value losses for the lease securitizations were 5.95% and 0% as of March
31,2002 and 3.75% and 2.72% respectively as of March 31, 2001.
-68-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Sale of Receivables and Securitization (Continued)
- -----------------------------------------------
For the year ended March 31, 2002, the following table summarizes certain cash
flows received from and paid to the securitization trusts:
Year ended
March 31, 2002
-------------------------
Lease Retail
--------- ----------
(Dollars in Millions)
Proceeds from new securitizations.............. n/a $ 4,410.8
Servicing fees received........................ $ 5.4 $ 55.7
Excess interest received from
interest only strips........................ $ 1.8 $ 171.6
Repurchase of lease receivables (b)............ $ (303.6) $ -
Other repurchases of receivables............... $ (7.6) $ (1.5)
Reimbursement of servicer advances............. $ 18.7 $ 6.9
Maturity advances (a).......................... $ - n/a
Reimbursements of maturity advances (a)........ $ 69.0 n/a
(a) Maturity advances represent the difference between the aggregate amount of
principal collected and available to pay principal of the Certificates,
and the outstanding balance of the Certificates due on targeted maturity
dates. The Company was reimbursed for prior period maturity advances from
principal collections in subsequent months.
(b) Amount represents optional redemptions associated with the maturity of
lease securitizations.
During the year ended March 31, 2002 and the six months ended March 31, 2001,
servicing fee assets in the amounts of $15 million and $17 million, were
recorded in conjunction with retail loan securitizations executed. The
amortized balance of servicing fee assets at March 31, 2002 and 2001, totaled
approximately $17 million and $18 million.
Historical and delinquency amounts for all vehicle receivables managed, which
represents those owned and securitized, for the year ended March 31, 2002 and
the six months ended March 31, 2001:
Year ended Six Months ended
March 31, 2002 March 31, 2001
----------------------- ------------------------
Lease Retail Lease Retail
--------- ---------- --------- ----------
(Dollars in Millions)
Principal amount managed........... $13,553.6 $17,994.6 $14,559.2 $13,108.0
Contracts outstanding managed...... 620,258 1,272,941 702,952 993,790
Delinquent contracts over 60 days.. 5,296 7,913 1,470 2,578
Credit Losses (net of recoveries).. $ 98.0 $ 98.7 $ 43.6 $ 34.1
Residual value losses.............. $ 388.4 n/a $ 193.9 n/a
Comprised of:
Receivables owned.................. $13,553.6 $13,409.2 $13,426.1 $ 9,034.5
Receivables securitized............ $ - $ 4,585.4 $ 1,133.1 $ 4,073.5
-69-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 - Sale of Receivables and Securitization (Continued)
- -----------------------------------------------
At March 31, 2002, the key economic assumptions and the sensitivity of the
current fair value of the residual cash flows to an immediate 10 and 20
percent adverse change in those economic assumptions are presented below.
Retail
-------------
(Dollars in Millions)
Balance Sheet Carrying amount/fair value
of retained interests............................. $ 356.4
Prepayment speed assumption.......................... 1.5%-1.6% ABS
Impact on fair value of 10% adverse change........ $ (10.4)
Impact on fair value of 20% adverse change........ $ (20.9)
Residual cash flows discount rate (annual rate)...... 5%-10.0%
Impact on fair value of 10% adverse change........ $ (3.8)
Impact on fair value of 20% adverse change........ $ (7.5)
Expected credit losses (annual rate)................. .50%-.90%
Impact on fair value of 10% adverse change........ $ (4.8)
Impact on fair value of 20% adverse change........ $ (9.6)
These hypothetical scenarios do not reflect expected market conditions and
should not be used as a prediction of future performance. As the figures
indicate, changes in the fair value may not be linear. Also, in this table,
the effect of a variation in a particular assumption on the fair value of the
retained interest is calculated without changing any other assumption; in
reality, changes in one factor may result in changes in another, which might
magnify or counteract the sensitivities. Actual cash flows may drastically
differ from the above analysis.
-70-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Derivatives and Hedging Activities
- -------------------------------------------
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133") requires companies to record
derivatives on the balance sheet as assets and liabilities, measured at fair
value. Fair value is determined using externally quoted market values where
possible. If externally quoted market rates are not available, the Company
uses external market rates in conjunction with a customized market valuation
system to determine the fair value of the Company's derivatives. Derivative
assets and liabilities include interest rate swaps, indexed note swap
agreements, cross currency interest rate swap agreements and option-based
products. The accounting for the gain or loss due to changes in fair value of
the hedged item depends on whether the relationship between the hedged item and
the derivative instrument qualifies for hedge treatment. If the relationship
between the hedged item and the derivative instrument does not qualify as a
hedge, the gains or losses are reported in earnings when they occur. However,
if the relationship between the hedged item and the derivative instrument
qualifies as a hedge, the accounting varies based on the type of risk being
hedged. The types of instruments that do not qualify for hedge accounting
include, but are not limited to, U.S. basis swap instruments, and currency
structured transactions including inverse floating rate instruments.
Derivatives are recognized in the balance sheet at their fair value. On the
date that the Company enters into a derivative contract, it designates the
derivative as a hedge of the fair value of a recognized asset or liability or a
foreign-currency fair-value hedge (a "foreign currency hedge"). Changes in the
fair value of a derivative that is highly effective as - and that is designated
and qualifies as - a fair-value hedge or foreign-currency hedge, along with
changes in fair value of the hedged assets or liabilities that are attributable
to the hedged risk, are recorded in current-period earnings. Additional
information concerning the SFAS No. 133 requirements is disclosed in Note 2 -
Summary of Significant Accounting Policies - Derivative Financial Instruments.
For the year ended March 31, 2002, the Company recognized a gain of $38 million
(reported as SFAS 133 fair value adjustments in the Consolidated Statement of
Income). The net adjustment reflects a gain of $43 million in the fair market
value of TMCC's portfolio of option-based products and certain interest rate
swaps, offset by a $5 million decrease related to the ineffective portion of
TMCC's fair value hedges. The increase in the fair market value of TMCC's
option-based products is primarily due to higher market interest rates. Various
derivative instruments, such as option-based products which hedge interest rate
risk from an economic perspective, and which the Company is unable or has
elected not to apply hedge accounting, are discussed in Non-Hedging Activities
below. For fair value hedging relationships, the components of each
derivative's gain or loss are included in the assessment of hedge
effectiveness.
TMCC maintains an overall risk management strategy that utilizes a variety of
interest rate and currency derivative financial instruments to mitigate its
economic exposure to fluctuations caused by volatility in interest rate and
currency exchange rates. TMCC does not use any of these instruments for trading
purposes.
-71-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Derivatives and Hedging Activities (Continued)
- -------------------------------------------
A reconciliation of the activity of TMCC's derivative financial instruments
which totaled $43.7 million for the year ended March 31, 2002 and the six
months ended March 31, 2001 is as follows:
March 31,
-------------------------------------------------------------------------------
Cross
Currency
Interest Interest Indexed
Rate Swap Rate Swap Option-based Note Swap
Agreements Agreements Products Agreements
---------------- ---------------- ---------------- ----------------
2002 2001 2002 2001 2002 2001 2002 2001
---- ---- ---- ---- ---- ---- ---- ----
(Dollars in Billions)
Beginning Notional Amount... $8.3 $8.4 $16.9 $10.5 $11.5 $11.7 $0.6 $1.4
Add:
New agreements........... 1.7 0.5 16.9 8.5 5.4 1.6 0.2 0.1
Less:
Terminated agreements.... - - 0.1 - 8.0 - 0.1 -
Expired agreements....... 2.2 0.6 3.8 2.1 2.8 1.8 0.5 0.9
Amortizing notionals - - 0.3 - - - - -
---- ---- ----- ----- ---- ----- ---- ----
Ending Notional Amount...... $7.8 $8.3 $29.6 $16.9 $6.1 $11.5 $0.2 $0.6
==== ==== ===== ===== ==== ===== ==== ====
Fair-Value Hedges
The Company enters into interest rate swaps, indexed note swap agreements and
cross currency interest rate swap agreements to convert its fixed-rate debt to
variable-rate debt, a portion of which is covered by option-based products.
(Refer to non-hedging activities below for a discussion of option-based
products).
TMCC uses interest rate swap agreements in managing its exposure to interest
rate fluctuations. Interest rate swap agreements are executed as either an
integral part of specific debt transactions or on a portfolio basis. TMCC's
interest rate swap agreements involve agreements to pay fixed and receive a
floating rate, or receive fixed and pay a floating rate, at specified
intervals, calculated on an agreed-upon notional amount. Interest rate swap
agreements may also involve basis swap contracts which are agreements to
exchange the difference between certain floating interest amounts, such as the
net payment based on the commercial paper rate and the London Interbank Offered
Rate ("LIBOR"), calculated on an agreed-upon notional amount. The original
maturities of interest rate swap agreements ranged from one to ten years at
March 31, 2002.
-72-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Derivatives and Hedging Activities (Continued)
- -------------------------------------------
The aggregate notional amounts of interest rate swap agreements outstanding at
March 31, 2002 and 2001:
March 31,
-------------------------
2002 2001
---------- ----------
(Dollars in Billions)
Floating rate swaps.......................... $ 14.9 $ 10.2
Fixed rate swaps............................. 11.5 5.3
Basis swaps.................................. 3.2 1.4
------ ------
Total interest rate swap agreements...... $ 29.6 $ 16.9
====== ======
TMCC uses indexed note swap agreements in managing its exposure in connection
with debt instruments whose interest rate and/or principal redemption amounts
are derived from other underlying indices. Indexed note swap agreements
involve agreements to receive interest and/or principal amounts associated
with the indexed notes, denominated in either U.S. dollars or a foreign
currency, and to pay fixed or floating rates on fixed U.S. dollar liabilities.
At March 31, 2002, TMCC was the counterparty to $0.2 billion of indexed note
swap agreements, of which $0.2 billion was denominated in foreign currencies.
At March 31, 2001, TMCC was the counterparty to $0.6 billion of indexed note
swap agreements, of which $0.3 billion was denominated in foreign currencies
and $0.3 billion was denominated in U.S. dollars. The original maturities of
indexed note swap agreements were ten years at March 31, 2002.
TMCC uses cross currency interest rate swap agreements to entirely hedge
exposure to exchange rate fluctuations on principal and interest payments for
borrowings denominated in foreign currencies. Notes and loans payable issued
in foreign currencies are hedged by concurrently executing cross currency
interest rate swap agreements which involve the exchange of foreign currency
principal and interest obligations for U.S. dollar obligations at agreed-upon
currency exchange and interest rates. The aggregate notional amounts of cross
currency interest rate swap agreements at March 31, 2002 and 2001 were
$7.8 billion and $8.3 billion, respectively. The original maturities of cross
currency interest rate swap agreements ranged from three to ten years at March
31, 2002.
Derivative instruments used by TMCC involve, to varying degrees, elements of
credit risk in the event a counterparty defaults in performing its obligation
under the derivative agreement. Credit risk is managed through the use of
credit standard guidelines, counterparty diversification, monitoring of
counterparty financial condition and master netting agreements in place with
all derivative counterparties. Credit exposure of derivative instruments is
discussed further under Item 7A. Quantitative and Qualitative Disclosures About
Market Risk.
-73-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 8 - Derivatives and Hedging Activities (Continued)
- -------------------------------------------
Non-Hedging Activities
Option-based products are executed on a portfolio basis and consist primarily
of purchased interest rate cap agreements, interest rate swaps and, to a lesser
extent, foreign exchange forward contract agreements. Option-based products
are agreements which either grant TMCC the right to receive, or require TMCC to
make payments at, specified interest rate levels. The aggregate notional
amounts of option-based products outstanding at March 31, 2002 and 2001 were
$6.1 billion and $11.5 billion, respectively. Approximately 28% of TMCC's
other senior debt at March 31, 2002 had floating interest rates that were
covered by option-based products which had an average strike rate of 4.35%.
Option-based products are used to hedge interest rate risk from an economic
perspective on TMCC's portfolio.
The Company uses this strategy to moderate its exposure to volatility in LIBOR.
These products are not linked to specific assets and liabilities that appear on
the balance sheet, and therefore, do not qualify for hedge accounting. In
addition, the Company also uses certain interest rate swaps for overall
asset/liability management purposes. These products are not linked to specific
assets or liabilities.
-74-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Notes and Loans Payable
- --------------------------------
Notes and loans payable at March 31, 2002 and 2001, which consisted of senior
debt, included the following:
March 31,
-----------------------
2002 2001
-------- --------
(Dollars in Millions)
Commercial paper, net..................... $ 5,012 $ 4,407
Other senior debt, due in the years
Ending:
2002................................ - 4,620
2003................................ 5,184 3,080
2004................................ 5,360 5,182
2005................................ 3,665 1,839
2006................................ 2,885 1,228
2007................................ 1,252 26
Thereafter.......................... 2,632 1,812
-------- --------
Total other senior debt............. 20,978 17,787
-------- --------
Notes and loans payable.......... $ 25,990 $ 22,194
======== ========
Notes and loans payable at March 31, 2002 and 2001 reflect the adjustments
required under SFAS No. 133 for derivatives and debt instruments which qualify
for hedge treatment as discussed in Note 8 - Derivatives and Hedging
Activities. The notional amount of notes and loans payable was $26.7 billion
and $23.1 billion at March 31, 2002 and 2001, respectively.
Short-term borrowings include commercial paper and certain medium-term notes
("MTNs"). The weighted average remaining term of commercial paper was 19 days
and 17 days at March 31, 2002 and 2001, respectively. The weighted average
interest rate on commercial paper was 1.83% and 5.10% at March 31, 2002 and
2001, respectively. At March 31, 2002, TMCC had no short-term MTNs with
original terms of one year or less. Short-term MTNs with original terms of one
year or less, included in other senior debt, were $1,205 million at March 31,
2001. The weighted average interest rate on these short-term MTNs was 5.01% at
March 31, 2001, including the effect of interest rate swap agreements.
Other senior debt includes certain MTNs, euro bonds and domestic bonds. The
weighted average interest rate on other senior debt was 4.23% and 5.46% at
March 31, 2002 and 2001, respectively, including the effect of interest rate
swap agreements. The rates have been calculated using rates in effect at March
31, 2002 and 2001, some of which are floating rates that reset periodically.
Less than one percent of other senior debt at March 31, 2002 had interest
rates, including the effect of interest rate swap agreements, that were fixed
for a period of more than one year. Approximately 28% of other senior debt at
March 31, 2002 had floating interest rates that were covered by option-based
products. The weighted average strike rate on these option-based products was
4.35% at March 31, 2002. TMCC manages interest rate risk through continuous
adjustment of the mix of fixed and floating rate debt using interest rate swap
agreements and option-based products.
-75-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Notes and Loans Payable (Continued)
- --------------------------------
Included in notes and loans payable at March 31, 2002 and 2001 were unsecured
notes denominated in various foreign currencies as follows:
March 31,
---------------------
2002 2001
------ ------
(Amounts in Millions)
British pound sterling................. 500 575
Danish kroner.......................... 400 400
Euro................................... 2,150 1,400
French franc........................... 1,545 1,545
German deutsche mark................... 792 2,842
Greek drachma.......................... - 5,000
Hong Kong dollar....................... 500 500
Italian lire........................... 234,000 434,000
Japanese yen........................... 218,200 159,300
Luxembourg franc....................... 2,000 2,000
New Zealand dollar..................... 100 200
Norwegian Krone........................ 1,250 1,000
Singapore dollar....................... 200 200
Swedish kronor......................... 560 1,060
Swiss franc............................ 2,750 2,000
Concurrent with the issuance of these unsecured notes, TMCC entered into cross
currency interest rate swap agreements to convert these obligations into U.S.
dollar obligations which in aggregate total a principal amount of $7.0 billion
and $8.2 billion at March 31, 2002 and 2001, respectively.
In September 2001, TMCC securitized retail finance receivables totaling $1.5
billion. This securitization was treated as a sale for legal purposes, but
treated as a secured borrowing for accounting purposes as the securitization
trust was not structured as a qualifying special purpose entity as defined
pursuant to SFAS 140. Therefore, the receivables and debt issued remained on
the balance sheet pursuant to SFAS 140, as amended. This accounting method is
referred to as the "portfolio method". Under the portfolio method, the
finance receivables transferred to the securitization trust and held as
collateral for the notes issued to investors are classified as "Finance
receivables, net - securitized". The $1.1 billion notes issued to investors in
the securitization trust are classified as "Notes payable related to
securitized finance receivables structured as collateralized borrowings".
Refer to Note 7 Sale of Receivables and Securitization for further discussion.
-76-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Fair Value of Financial Instruments
- ---------------------------------------------
The fair value of financial instruments at March 31, 2002 and 2001, was
estimated using the valuation methodologies described below. Considerable
judgment was employed in interpreting market data to develop estimates of fair
value; accordingly, the estimates presented herein are not necessarily
indicative of the amounts that could be realized or would be paid in a current
market exchange. The use of different market assumptions or valuation
methodologies could have a material effect on the estimated fair value amounts.
The carrying amounts and estimated fair values of the Company's financial
instruments at March 31, 2002 and 2001 are as follows:
March 31,
-----------------------------------------
2002 2001
-------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
(Dollars in Millions)
Balance sheet financial
instruments:
Assets:
Cash and cash equivalents.......... $ 747 $ 747 $ 294 $ 294
Investments in marketable
securities...................... $ 1,100 $ 1,100 $ 1,075 $ 1,075
Finance receivables, net and
Finance receivables, net -
securitized................... $ 17,038 $ 17,284 $ 12,693 $ 12,515
Derivative Assets:
Cross currency interest rate
swap agreements............... $ 12 $ 12 $ 72 $ 72
Interest rate swap agreements... $ 346 $ 346 $ 278 $ 278
Option-based products........... $ 92 $ 92 $ 4 $ 4
Indexed note swap agreements.... $ 4 $ 4 $ 25 $ 25
Other receivables.................. $ $ $ 311 $ 311
Liabilities:
Notes and loans payable............ $ 25,990 $ 25,990 $ 22,194 $ 22,194
Notes payable related to securitized
receivables structured as
collateralized borrowings....... $ 1,036 $ 1,036 $ - $ -
Derivative Liabilities:
Cross currency interest rate
swap agreements............... $ 970 $ 970 $ 1,322 $ 1,322
Interest rate swap agreements... $ 148 $ 148 $ 89 $ 89
Option-based products........... $ - $ - - -
Indexed note swap agreements.... $ 6 $ 6 $ 3 $ 3
Other payables..................... $ 583 $ 583 $ 607 $ 607
-77-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Fair Value of Financial Instruments (Continued)
- --------------------------------------------
The fair value estimates presented herein are based on information available to
management as of March 31, 2002 and 2001.
The methods and assumptions used to estimate the fair value of financial
instruments are summarized as follows:
Cash and Cash Equivalents
-------------------------
The carrying amount of cash and cash equivalents approximates market value due
to the short maturity of these investments.
Investments in Marketable Securities
------------------------------------
The fair value of marketable securities was estimated using quoted market
prices or discounted cash flow analysis.
Retail Finance Receivables
--------------------------
The carrying amounts of $3.4 billion and $3.4 billion of variable rate finance
receivables at March 31, 2002 and 2001, respectively, were assumed to
approximate fair value as these receivables reprice at prevailing market rates.
The fair value of fixed rate finance receivables was estimated by discounting
expected cash flows using the rates at which loans of similar credit quality
and maturity would be originated as of March 31, 2002 and 2001.
Other Receivables and Other Payables
------------------------------------
The carrying amount and fair value of other receivables and other payables are
presented separately from the receivables and payables arising from cross
currency interest rate swap agreements. The carrying amount of the remaining
other receivables and payables approximate market value due to the short
maturity of these instruments.
Notes and Loans Payable
-----------------------
The fair value of notes and loans payable was estimated by discounting expected
cash flows using the interest rates at which debt of similar credit quality and
maturity would be issued as of March 31, 2002 and 2001. The carrying amount of
commercial paper was assumed to approximate fair value due to the short
maturity of these instruments.
Cross Currency Interest Rate Swap Agreements
--------------------------------------------
The estimated fair value of TMCC's outstanding cross currency interest rate
swap agreements was derived by discounting expected cash flows using quoted
market exchange rates and quoted market interest rates as of March 31, 2002 and
2001.
Interest Rate Swap Agreements
-----------------------------
The estimated fair value of TMCC's outstanding interest rate swap agreements
was derived by discounting expected cash flows using quoted market interest
rates as of March 31, 2002 and 2001.
-78-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Fair Value of Financial Instruments (Continued)
- --------------------------------------------
Option-based Products
---------------------
The estimated fair value of TMCC's outstanding option-based products was
derived by discounting expected cash flows using quoted market exchange rates
and market interest rates as of March 31, 2002 and 2001.
Indexed Note Swap Agreements
----------------------------
The estimated fair value of TMCC's outstanding indexed note swap agreements was
derived by discounting expected cash flows using quoted market exchange rates
and market interest rates or by using quoted market prices as of March 31, 2002
and 2001.
Note 11 - Financial Instruments with Off-Balance Sheet Risk
- -----------------------------------------------------------
Lines of Credit
- ---------------
TMCC has extended inventory floorplan lines of credit to dealers, the unused
portion of which amounted to $1.8 billion and $675 million at March 31, 2002
and 2001, respectively. Security interests are acquired in vehicles and
equipment financed and such financings are generally backed by corporate or
individual guarantees from or on behalf of the participating dealers.
Note 12 - Pension and Other Benefit Plans
- -----------------------------------------
All full-time employees of the Company are eligible to participate in the TMS
pension plan commencing on the first day of the month following hire. Benefits
payable under this non-contributory defined benefit pension plan are based upon
the employees' years of credited service and the highest sixty consecutive
months' compensation, reduced by a percentage of social security benefits. The
Company's pension expense was $8 million, $3 million, $5 million and $6 million
for the year ended March 31, 2002, the six months ended March 31, 2001, and for
the years ended September 30, 2000 and 1999, respectively. At March 31, 2002
and 2001, and September 30, 2000 and 1999, the accumulated benefit obligation
and plan net assets for employees of the Company were not determined separately
from TMS; however, the plan's net assets available for benefits exceeded the
accumulated benefit obligation. TMS funding policy is to contribute annually
the maximum amount deductible for federal income tax purposes.
-79-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13 - Provision for Income Taxes
- ------------------------------------
The provision for income taxes consisted of the following:
Year Six Months Years
Ended Ended Ended
March 31, March 31, September 30,
------------- ------------- -----------------
2002 2001 2000 1999
------ ------ ------ ------
(Dollars in Millions)
Current
Federal.......................... $ (46) $ 32 $ 71 $(130)
State............................ (6) 10 41 17
------ ------ ------ ------
Total current ................ (52) 42 112 (113)
------ ------ ------ ------
Deferred
Federal.......................... 174 (11) (21) 202
State............................ 37 ( 4) (26) 9
------ ------ ------ ------
Total deferred................ 211 (15) (47) 211
------ ------ ------ ------
Provision for income taxes. $ 159 $ 27 $ 65 $ 98
====== ====== ====== ======
A reconciliation between the provision for income taxes computed by applying
the federal statutory tax rate to income before income taxes and actual income
taxes provided is as follows:
Year Six Months Years
Ended Ended Ended
March 31, March 31, September 30,
-------------- -------------- ------------------------------
2002 % 2001 % 2000 % 1999 %
------ ------ ------ ------ ------ ------ ------ ------
(Dollars in Millions)
Provision for income
taxes at federal
statutory tax rate... $ 141 35.00% $ 25 35.00% $ 60 35.00% $ 81 35.00%
State and local taxes
(net of federal tax
benefit)............. 20 4.97% 4 5.63% 10 5.88% 17 7.39%
Other................... (2) (.45)% (2) (3.19)% (5) (2.43)% - .14%
------ ------ ------ ------ ------ ------ ------ ------
Provision for income
taxes............. $ 159 $ 27 $ 65 $ 98
====== ====== ====== ======
Effective tax rate...... 39.52% 37.44% 38.45% 42.53%
====== ====== ====== ======
-80-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 13 - Provision for Income Taxes (Continued)
- ------------------------------------
The deferred federal and state income tax liabilities are as follows:
March 31,
-----------------------
2002 2001
------ ------
(Dollars in Millions)
Federal..................................... $1,524 $1,337
State....................................... 155 131
------ ------
Net deferred income tax liability........ $1,679 $1,468
====== ======
The Company's deferred tax assets and liabilities consisted of the following:
March 31,
-----------------------
2002 2001
------ ------
(Dollars in Millions)
Assets:
Alternative minimum tax.................. $ - $ -
Provision for losses..................... 91 69
Deferred administrative fees............. 130 104
NOL carryforwards........................ 36 31
Deferred acquisition costs............... 30 29
Unearned insurance premiums.............. 7 4
Revenue recognition...................... 1 1
Other.................................... - -
------ ------
Deferred tax assets................... 295 238
------ ------
Liabilities:
Mark-to-Market........................... 15 -
Lease transactions....................... 1,664 1,475
State taxes.............................. 193 162
Other.................................... 102 69
------ ------
Deferred tax liabilities.............. 1,974 1,706
------ ------
Valuation allowance................... - -
------ ------
Net deferred income tax liability.. $1,679 $1,468
====== ======
TMCC has state tax net operating loss carryforwards of $494 million which
expire beginning in fiscal 2003 through 2017.
-81-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 - Comprehensive Income
- ------------------------------
The Company's total comprehensive earnings were as follows:
Year Six Months Years
Ended Ended Ended
March 31, March 31, September 30,
------------- ------------- -----------------
2002 2001 2000 1999
------ ------ ------ ------
(Dollars in Millions)
Net income........................................ $ 243 $ 42 $ 104 $ 132
Other comprehensive income:
Net unrealized gains arising during
period (net of tax of $(1), $2, $5 and $2
in 2002, 2001, 2000 and 1999).............. (1) 3 9 4
Less: reclassification adjustment for net
gains included in net income (net of tax
of $0, $2, $3 and $1 in 2002, 2001, 2000
and 1999)................................... (1) (4) (5) (2)
------ ------ ------ ------
Net unrealized (loss) gain on available-for-sale
marketable securities....................... (2) (1) 4 2
------ ------ ------ ------
Total Comprehensive Income..................... $ 241 $ 41 $ 108 $ 134
====== ====== ====== ======
-82-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15 - Related Party Transactions
- ------------------------------------
Support Agreements
During fiscal 2000, an operating agreement with TMS and Toyota Motor
Manufacturing North America Inc. ("TMMNA") (the "Operating Agreement") provided
that 100% ownership of TMCC would be retained by TMS as long as TMCC had any
funded debt outstanding and that TMS and TMMNA would provide necessary equity
contributions or other financial assistance it deemed appropriate to ensure
that TMCC maintained a minimum coverage on fixed charges of 1.10 times such
charges in any fiscal quarter. The coverage provision of the Operating
Agreement was solely for the benefit of the holders of TMCC's commercial paper
and extendible commercial notes.
In connection with the creation of TFSC and the transfer of ownership of TMCC
from TMS to TFSC, the Operating Agreement with TMS and TMMNA was terminated, a
credit support agreement (the "TMC Credit Support Agreement") was entered into
between TMC and TFSC, and a credit support agreement (the "TFSC Credit Support
Agreement") was entered into between TFSC and TMCC. Under the terms of the TMC
Credit Support Agreement, TMC agreed to: 1) maintain 100% ownership of TFSC; 2)
cause TFSC and its subsidiaries to have a net worth of at least Japanese yen 10
million; and 3) make sufficient funds available to TFSC so that TFSC will be
able to (i) service the obligations arising out of its own bonds, debentures,
notes and other investment securities and commercial paper and (ii) honor its
obligations incurred as a result of guarantees or credit support agreements
that it has extended. The agreement is not a guarantee by TMC of any
securities or obligations of TFSC.
Under the terms of the TFSC Credit Support Agreement, TFSC agreed to:
1) maintain 100% ownership of TMCC; 2) cause TMCC and its subsidiaries to have
a net worth of at least U.S. $100,000; and 3) make sufficient funds available
to TMCC so that TMCC will be able to service the obligations arising out of its
own bonds, debentures, notes and other investment securities and commercial
paper (collectively, "TMCC Securities"). The agreement is not a guarantee by
TFSC of any TMCC Securities or other obligations of TMCC. The TMC Credit
Support and the TFSC Credit Support Agreements are governed by, and construed
in accordance with, the laws of Japan.
During fiscal 2001, TMCC and TFSC entered into a credit support fee agreement
(the "Credit Support Fee Agreement"). The Credit Support Fee Agreement
provides that TMCC will pay to TFSC a semi-annual fee equal to 0.05% per annum
of the weighted average outstanding amount of TMCC's Securities entitled to
credit support, as described above. Credit support fees totaled $12 million
and $6 million for the year ended March 31, 2002 and the six months ended March
31, 2001, respectively.
During fiscal 2000, TMCC had an arrangement to borrow from and invest funds
with TMS at short-term market rates. This arrangement was terminated on
October 1, 2000, when ownership of TMCC was transferred from TMS to TFSA, a
holding company owned 100% by TFSC. TFSC, in turn, is a wholly-owned
subsidiary of TMC. No funds were borrowed from or invested with TMS under this
arrangement during the year ended March 31, 2001. However, TMS made a short
term $282 million loan to TMCC at an interest rate of 3.53% in September 2001
to assist TMCC in its efforts to assure continuing liquidity during the
financial market disruptions that occurred in the aftermath of the events of
September 11, 2001. The loan and interest incurred were repaid in full prior
to September 30, 2001. For the years ended September 30, 2000, 1999 and 1998,
the highest amounts of funds invested with TMS were $797 million, $2 billion
and $567 million, respectively; interest earned on these investments totaled
$13 million, $41 million and $3 million for the years ended September 30, 2000,
1999 and 1998, respectively.
-83-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15 - Related Party Transactions (Continued)
- ------------------------------------
Parent Support
During fiscal 2000, TMS provided support in the amount of $35 million to TMCC
for certain vehicle disposition losses. This amount is included in the
Consolidated Statement of Income related for the year ended September 30,
2000. TMCC did not receive support from TMS or TFSA for vehicle disposition
losses for the year ended March 31, 2002 or the six months ended March 31,
2001.
Marketing and Wholesale Support
TMS sponsors special retail and lease marketing incentive programs offered by
TMCC. TMCC recognized revenue of $131 million, $55 million, $108 million and
$126 million, for the year ended March 31, 2002, the six months ended March 31,
2001 and for the years ended September 30, 2000 and 1999, respectively, related
to TMS sponsored programs. Additionally, TMCC and TMS entered into an Amended
and Restated Repurchase Agreement in October 2000. This agreement states that
TMCC is not obligated to finance wholesale obligations from any TMS dealers or
retail obligations from any TMS customers. In addition, TMS will arrange for
the repurchase of new Toyota and Lexus vehicles financed at wholesale by TMCC
at the aggregate cost financed in the event of dealer default.
Shared Services
On October 1, 2000, TMS and TMCC entered into a Shared Services Agreement
covering certain technological and administrative services, such as
information systems support, facilities and corporate services, TMS provides
after the ownership of TMCC was transferred to TFSA. Net charges, which are
assessed on a cost basis, that were reimbursed by TMCC to TMS totaled $51
million and $27 million for the year ended March 31, 2002 and the six months
ended March 31, 2001, respectively.
The Company leases its headquarters facility and Iowa Service Center from TMS.
Rent expense paid to TMS for these facilities totaled $5 million, $3 million,
$5 million and $4 million for the year ended March 31, 2002, the six months
ended March 31, 2001 and for the years ended September 30, 2000 and 1999,
respectively. TMCC leases a corporate aircraft to TMS and provides wholesale
financing for TMS affiliates. TMCC recognized revenue related to these
arrangements of $3 million, $4 million, $6 million and $6 million for the year
ended March 31, 2002, the six months ended March 31, 2001 and for the years
ended September 30, 2000 and 1999, respectively.
TMIS provides certain insurance services, and insurance and reinsurance
coverage, respectively, to TMS. Premiums, commissions and fees earned on these
services for year ended March 31, 2002, the six months ended March 31, 2001 and
for the years ended September 30, 2000 and 1999 totaled $40 million, $19
million, $33 million and $24 million, respectively.
Affiliate Loans
TMCC had extended a $42.5 million uncommitted revolving line of credit to
iStarSystems, Inc., a corporation owned 80% by TMS. The loan bears interest at
a floating rate of interest of LIBOR plus 3.75% per annum and is guaranteed by
TMS. During fiscal 2002, TMS repaid the outstanding balance of $40 million and
the line of credit was terminated. TMCC recognized $2.2 million in interest
income on the loan in fiscal 2002.
During fiscal 1999, Toyota Credit Canada Inc., an affiliate of the Company,
repaid $201 million in intercompany loans. Interest charged on these loans
reflected market rates and totaled $8 million for the year ended September 30,
1999.
-84-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 16 - Lines of Credit/Standby Letters of Credit
- ---------------------------------------------------
To support its commercial paper program, TMCC maintains syndicated bank credit
facilities with certain banks which aggregated $3.5 billion and $3.0 billion,
at March 31, 2002 and 2001, respectively. No loans were outstanding under any
of these bank credit facilities as of March 31, 2002 or 2001.
In addition, as of March 31, 2002, there are additional committed and
uncommitted lines of credit for $40 million and $100 million, respectively,
which are intended to be used by the Company to support its commercial paper
program and for general corporate purposes.
To facilitate and maintain letters of credit, TMCC maintains uncommitted,
unsecured lines of credit with banks totaling $61 million and $85 million as of
March 31, 2002 and 2001, respectively. Approximately $0.5 million and
$1 million in letters of credit were outstanding as of March 31, 2002 and 2001,
respectively.
Note 17 - Commitments and Contingent Liabilities
- ------------------------------------------------
TMCC has executed guarantees totaling $65 million in respect to TCA's offshore
dollar bank loans, of which approximately $40 million, including principal and
interest, is outstanding. Late in 2001, the Argentine government instituted a
series of changes that lead to political, economic and regulatory risks to
Argentine businesses. The government has imposed foreign exchange controls
restricting offshore payment transfers, and these controls are currently
preventing TCA from sending payments on its offshore dollar loans out of
Argentina. In February 2002, the Argentine government established measures to
re-denominate the entire Argentine economy into pesos and has permitted the
peso to float freely against other global currencies. This re-denomination
policy adversely affected TCA's financial condition and its ability to fully
satisfy its offshore dollar loans. Consequently for the year ended March 31,
2002, TMCC has included a charge against income of $31 million to write-off
its $5 million investment in TCA and to establish a reserve of $26 million
relating to TMCC's $40 million guaranty of TCA's offshore outstanding debt.
TMCC will continue to monitor the situation in Argentina.
TMCC has executed guarantees of the debt of BTB totaling $30 million.
TMCC has signed a comfort letter on behalf of TSV regarding TSV's office
lease. The comfort letter provides that in the event any currency exchange
controls are imposed in Venezuela that render it illegal for TSV to pay the
rent to the Landlord in U.S. Dollars (which is required under the Lease),
then TMCC will pay the rental fees that are owed to the landlord during the
currency exchange restriction period to a bank account located outside of
Venezuela. The total rent and other lease costs payable under the lease for
the entire 5-year term is approximately $4.2 million. The lease is
cancellable at the convenience of TMCC after year 3.
At March 31, 2002, the Company was a lessee under lease agreements for
facilities with minimum future commitments as follows: years ending March 31,
2003 - $19 million; 2004 - $14 million; 2005 - $9 million;
2006 - $7 million; 2007 - $4 million and thereafter - $2 million.
TMCC has guaranteed payments of principal and interest on $58 million principal
amount of flexible rate demand pollution control revenue bonds maturing in
2006, issued in connection with the Kentucky manufacturing facility of an
affiliate.
-85-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17 - Commitments and Contingent Liabilities (Continued)
- ------------------------------------------------
TMCC has guaranteed payments of principal, interest and premiums, if any, on
$88 million principal amount of flexible rate demand solid waste disposal
revenue bonds issued by Putnam County, West Virginia, of which $40 million
matures in June 2028, $27.5 million matures in August 2029, and $20.5 million
matures in April 2030. The bonds were issued in connection with the West
Virginia manufacturing facility of an affiliate.
TMCC has guaranteed payments of principal, interest and premiums, if any, on
$60 million principal amount of flexible rate demand pollution control revenue
bonds issued by Gibson County, Indiana, of which $10 million matures in
October 2027, January 2028, January 2029, January 2030, February 2031 and
September 2031. The bonds were issued in connection with the Indiana
manufacturing facility of an affiliate.
TMCC also maintains revolving credit facilities with dealers. These revolving
credit facilities can be used for business acquisitions, facilities
refurbishment, real estate purchases and working capital requirements. These
financings are backed by corporate or individual guarantees from or on behalf
of the participating dealers. The revolving credit facilities totaled $1,524
million of which $553 million was outstanding as of March 31, 2002.
In lieu of a cash reserve fund to fund shortfalls in principal and interest
payments to security holders, TMCC may undertake to advance funds in respect
of certain shortfalls and losses, taking a revolving liquidity note in return
which allows the securitization trust to receive draws from TMCC to fund
shortfalls in principal and interest payments due to investors up to a
specified amount and obligates the securitization trust to repay any amounts
drawn with interest accrued thereon. Repayments of principal and interest due
under the revolving liquidity note are subordinated to principal and interest
payments on the asset-backed securities and, in some circumstances, to
deposits into a reserve account. To the extent amounts are insufficient to
repay amounts outstanding under a revolving liquidity note, TMCC may recognize
a loss. As of March 31, 2002, the aggregate amount available under the
revolving liquidity notes is $15 million.
TMCC has also guaranteed the obligations of TMIS relating to vehicle service
insurance agreements issued in four specific states (Alabama, Illinois, New
York and Virginia). These guarantees have been given without regard to any
security, but are limited to the duration of the underlying insurance
coverages up to a maximum of the original manufacturer's suggested retail
price on the vehicles. As of March 31, 2002, TMCC has not historically, and
does not expect, to pay any amounts under this guarantee.
An operating agreement between TMCC and TCPR (the "Agreement"), provides that
TMCC will make necessary equity contributions or provide other financial
assistance TMCC deems appropriate to ensure that TCPR maintains a minimum
coverage on fixed charges of 1.10 times such fixed charges in any fiscal
quarter. The Agreement does not constitute a guarantee by TMCC of any
obligations of TCPR. The fixed charge coverage provision of the Agreement is
solely for the benefit of the holders of TCPR's commercial paper, and the
Agreement may be amended or terminated at any time without notice to, or the
consent of, holders of other TCPR obligations.
-86-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 17 - Commitments and Contingent Liabilities (Continued)
- ------------------------------------------------
Various legal actions, governmental proceedings and other claims are pending or
may be instituted or asserted in the future against TMCC and its subsidiaries
with respect to matters arising from the ordinary course of business. Certain
of these actions are or purport to be class action suits, seeking sizeable
damages and/or changes in TMCC's business operations, policies and practices.
Certain of these actions are similar to suits which have been filed against
other financial institutions and captive finance companies. Management and
internal and external counsel perform periodic reviews of pending claims and
actions to determine the probability of adverse verdicts and resulting amounts
of liability. The amounts of liability on pending claims and actions as of
March 31, 2002 were not determinable; however, in the opinion of management,
the ultimate liability resulting therefrom should not have a material adverse
effect on TMCC's consolidated financial position or results of operations.
Note 18 - Segment Information
- -----------------------------
The Company's operating segments include finance and insurance operations.
Finance operations include retail leasing, retail and wholesale financing and
certain other financial services to authorized Toyota and Lexus vehicle and
Toyota industrial equipment dealers and their customers in the United States
(excluding Hawaii), Puerto Rico, Mexico and Venezuela. Insurance operations
are performed by TMIS and its subsidiaries. The principal activities of TMIS
include marketing, underwriting, claims administration and providing certain
insurance and contractual coverages related to vehicle service agreements and
contractual liability agreements sold by or through Toyota and Lexus vehicle
dealers and affiliates to customers in the United States (excluding Hawaii).
In addition, the insurance subsidiaries insure and reinsure certain TMS and
TMCC risks.
The accounting policies of the operating segments are the same as those
described in Note 2 - Summary of Significant Accounting Policies of the Notes
to Consolidated Financial Statements. The Company reports consolidated
financial information for both external and internal purposes. Currently,
TMCC's finance and insurance segments operate only in the United States, Puerto
Rico, Mexico and Venezuela. The majority of the Company's finance and
insurance segments are located within the United States.
-87-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 18 - Segment Information (Continued)
- -----------------------------
Financial results for the Company's operating segments for the year ended March
31, 2002, the six months ended March 31, 2002 and the years ended September 30,
2000 and 1999 are summarized below:
March 31, September 30,
----------------------- -----------------------
2002 2001 2000 1999
---------- ---------- ---------- ----------
(Dollars in Millions)
Assets:
Financing operations.................... $ 33,664 $ 28,694 $ 27,525 $ 24,156
Insurance operations.................... 780 852 863 732
Eliminations/reclassifications.......... (184) (332) (352) (310)
---------- ---------- ---------- ----------
Total assets.......................... $ 34,260 $ 29,214 $ 28,036 $ 24,578
========== ========== ========== ==========
Gross revenues:
Financing operations.................... $ 3,759 $ 1,870 $ 3,424 $ 3,234
Insurance operations.................... 184 88 165 141
Eliminations............................ - - - -
---------- ---------- ---------- ----------
Total gross revenues.................. $ 3,943 $ 1,958 $ 3,589 $ 3,375
========== ========== ========== ==========
Depreciation and amortization:
Financing operations.................... $ 1,556 $ 789 $ 1,556 $ 1,710
Insurance operations.................... - - 1 1
---------- ---------- ---------- ----------
Total depreciation and amortization... $ 1,556 $ 789 $ 1,557 $ 1,711
========== ========== ========== ==========
Interest Expense:
Financing operations.................... $ 1,030 $ 726 $ 1,289 $ 940
Insurance operations.................... - - - -
---------- ---------- ---------- ----------
Total interest expense $ 1,030 $ 726 $ 1,289 $ 940
========== ========== ========== ==========
Interest Income:
Financing operations.................... $ 37 $ 32 $ 26 $ 9
Insurance operations.................... 26 14 23 20
---------- ---------- ---------- ----------
Total interest income $ 63 $ 46 $ 49 $ 29
========== ========== ========== ==========
Income tax expense:
Financing operations.................... $ 139 $ 18 $ 62 $ 87
Insurance operations.................... 20 9 3 11
---------- ---------- ---------- ----------
Total income tax expense.............. $ 159 $ 27 $ 65 $ 98
========== ========= ========== ==========
Net Income:
Financing operations.................... $ 199 $ 22 $ 70 $ 113
Insurance operations.................... 44 20 34 19
---------- ---------- ---------- ----------
Net Income............................ $ 243 $ 42 $ 104 $ 132
========== ========== ========== ==========
Capital expenditures:
Financing operations.................... $ 32 $ 14 $ 18 $ 33
Insurance operations.................... 2 - 2 4
---------- ---------- ---------- ----------
Total capital expenditures............ $ 34 $ 14 $ 20 $ 37
========== ========== ========== ==========
-88-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 19 - Selected Quarterly Financial Data (Unaudited)
- -------------------------------------------------------
Total
Financing Interest Depreciation Net
Revenues Expense on Leases Income
---------- -------- ------------ --------
(Dollars in Millions)
Year Ended March 31, 2002:
First quarter.............. $ 874 $ 296 $ 374 $ 50
Second quarter............. 882 268 380 21
Third quarter.............. 909 244 415 62
Fourth quarter............. 917 222 411 110
------ ------ ------ ------
Total................... $3,582 $1,030 $1,580 $ 243
====== ====== ====== ======
Six Months Ended March 31, 2001:
First quarter.............. $ 878 $ 383 $ 368 $ 18
Second quarter............. 882 343 385 24
------ ------ ------ ------
Total................... $1,760 $726 $ 753 $ 42
====== ====== ====== ======
Year Ended September 30, 2000:
First quarter.............. $ 797 $ 277 $ 383 $ 32
Second quarter............. 830 317 367 25
Third quarter.............. 861 347 322 23
Fourth quarter............. 864 348 368 24
------ ------ ------ ------
Total................... $3,352 $1,289 $1,440 $ 104
====== ====== ====== ======
Year Ended September 30, 1999:
First quarter.............. $ 805 $ 243 $ 431 $ 35
Second quarter............. 786 220 427 28
Third quarter.............. 788 230 410 39
Fourth quarter............. 786 247 396 30
------ ------ ------ ------
Total................... $3,165 $ 940 $1,664 $ 132
====== ====== ====== ======
-89-
TOYOTA MOTOR CREDIT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 20 - Subsequent Events
- ---------------------------
During May 2002, TMCC sold retail finance receivables totaling $1.6 billion,
subject to certain limited recourse provisions, to TAFR. TAFR in turn sold
the receivables to specific trusts. TMCC continues to service the receivables
and receives a servicing fee of 1% of the total principal balance of the total
securitized retail receivables. In a subordinated capacity, TAFR retains
excess cash flows, certain cash deposits and other related amounts that are
held as restricted assets subject to limited recourse provisions. These
restricted assets are not available to satisfy any obligations of TMCC.
Securitization investors have recourse to the interest-only strips, restricted
cash held by the securitization trusts, and any subordinated retained
interest. Investors do not have recourse to other assets held by TMCC for
failure of obligors to pay amounts due. As part of the transaction, TMCC
entered into a revolving liquidity note agreement in lieu of a cash reserve
fund to fund shortfalls of principal and interest payments to security
holders. The maximum aggregate amount available under the revolving liquidity
note is $8 million. The Trust will be obligated to repay amounts drawn and
interest will be accrued at 4.69% per annum.
Effective May 2002, TMCC has provided comfort letters to Mexican and
Venezuelan banks on behalf of TSM and TSV as a condition to their extending
local bank credit facilities to TSM and TSV. Under the comfort letters, TMCC
agrees to exercise its influence to induce TSM and TSV to meet all their
obligations under the credit facilities. Additionally, TMCC agrees not to
pledge or sell stock in TSM or TSV as long as any TSM and/or TSV loans are
outstanding. The bank facilities provide TSM and TSV with uncommitted bank
lines of credit for a period of one year and allow advances in the maximum
amounts of $35 million for TSM and $5 million for TSV. Maturities for TSM and
TSV bank loan advances range from one month to 36 months. The comfort letters
will remain in effect for as long as any TSM and/or TSV loans funded under
the facilities are outstanding. The term of the comfort letters may be
extended for additional periods by mutual agreement between TMCC and the
banks. The comfort letters do not constitute a guarantee by TMCC of TSM's and
TSV's obligations under the bank facilities.
-90-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There is nothing to report with regard to this item.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth certain information regarding the directors and
executive officers of TMCC as of April 30, 2002.
Name Age Position
---- --- --------
George Borst ............. 53 Director, President and
Chief Executive Officer, TMCC;
Director, Secretary and Chief
Financial Officer, TFSA
Nobukazu Tsurumi.......... 53 Director, Executive Vice President
and Treasurer, TMCC
David Pelliccioni......... 54 Director, Group Vice President
and Secretary, TMCC
John Stillo............... 49 Vice President and Chief
Financial Officer, TMCC
Ryuji Araki............... 62 Director, TMCC;
Director, TFSC;
Executive Vice President, TMC Board of
Directors
Hideto Ozaki.............. 56 Director, TMCC; Director and
President, TFSA; President and
Director, TFSC
Yoshio Ishizaka........... 62 Director, TMCC; Executive Vice
President, TMC Board of Directors
Yoshimi Inaba............. 56 Director, TMCC
Director, TMC
James Press............... 55 Director, TMCC
All directors of TMCC are elected annually and hold office until their
successors are elected and qualified. Officers are elected annually and serve
at the pleasure of the Board of Directors.
Mr. Borst was named Director, President and Chief Executive Officer of TMCC in
October 2000, and Director, Secretary and Chief Financial Officer of TFSA in
August 2000. Mr. Borst was named Senior Vice President of TMS in June 1997.
From April 1997 to September 2000, Mr. Borst was Director and Senior Vice
President and General Manager of TMCC. From January 1993 to May 1997,
Mr. Borst was Group Vice President of TMS. Mr. Borst has been employed with
TMCC and TMS, in various positions, since 1985.
-91-
Mr. Tsurumi was named Director and Executive Vice President and Treasurer of
TMCC in October 2000. From January 2000 to September 2000, Mr. Tsurumi was
Director and Senior Vice President of TMCC and Group Vice President of TMS.
From January 1999 to December 1999, Mr. Tsurumi was Group Vice President and
Treasurer of TMCC and Vice President of TMS. From January 1996 to December
1998, Mr. Tsurumi was Managing Director for Toyota Finance Australia. Mr.
Tsurumi has been employed with TMC, in various positions worldwide, since 1971.
Mr. Pelliccioni was named Director, Group Vice President - Sales, Marketing and
Operations, and Secretary of TMCC in January 2002. From August 2001 to January
2002, Mr. Pelliccioni was Vice President - Sales, Marketing and Operations of
TMCC. From May 1999 to August 2001, Mr. Pelliccioni was Vice President - Field
Operations of TMCC. From 1998 to August 2001, Mr. Pelliccioni was Vice
President of TMS. Mr. Pelliccioni has been employed with TMCC and TMS, in
various positions, since 1988.
Mr. Stillo was named Vice President and Chief Financial Officer of TMCC in
2001. From June 2000 to January 2001, Mr. Stillo was Executive Vice President,
Investments and Capital Planning at Associates First Capital Corporation. From
August 1997 to June 2000, Mr. Stillo was Executive Vice President and
Comptroller at Associates First Capital Corporation.
Mr. Araki was named Director of TFSC in July 2000, and Director of TMCC in
September 1995. Mr. Araki was named Executive Vice President of TMC's Board of
Directors in June 2001. Mr. Araki was Director of TFSA from August 2000 to
July 2001. Mr. Araki was Senior Managing Director of TMC's Board of Directors
from June 1999 to June 2001 and has served on TMC's Board of Directors since
September 1992. From June 1997 to June 1999, Mr. Araki was Managing Director
of TMC. Mr. Araki has been employed with TMC, in various positions, since
1962.
Mr. Ozaki was named Director and President of TFSA in August 2000, President
and Director of TFSC in July 2000, and Director of TMCC in October 1999. From
June 1999 to June 2000, Mr. Ozaki was Director of TMC. From September 1997 to
June 1999, Mr. Ozaki was the general manager of the finance division of TMC.
From January 1997 to August 1997, Mr. Ozaki was the Project General Manager of
the Finance Division of TMC. From January 1994 to December 1996, Mr. Ozaki was
the Project General Manager of the Accounting Division of TMC. Mr. Ozaki has
been employed with TMC, in various positions, since 1968.
Mr. Ishizaka was named Director of TMCC in October 2000, and Executive Vice
President of TMC's Board of Directors in June 2001. Mr. Ishizaka was Senior
Managing Director of TMC from June 1999 to June 2001. From June 1996 to June
1999, Mr. Ishizaka was President of TMS. From September 1992 to June 1999, Mr.
Ishizaka was Director of TMC. Mr. Ishizaka has been employed with TMC, in
various positions, since 1964.
Mr. Inaba was named Director of TMCC and TMS and President of TMS in June
1999, and was named Director of TMC in June 1997. From June 1999 to September
2000, Mr. Inaba was President of TMCC. From June 1997 to June 1999, Mr. Inaba
was the General Manager of the Europe, Africa and United Kingdom Division of
TMC. From June 1996 to May 1997, Mr. Inaba was Senior Vice President of TMS.
Mr. Inaba has been employed with TMC, in various positions worldwide, since
1968.
Mr. Press was named Director of TMCC in July 1999. He is also Chief Operating
Officer, a Director and Executive Vice President of TMS, positions he has held
since February 2001, June 1996 and April 1999, respectively. From April 1998
to March 1999, he was a Senior Vice President of TMS. From April 1995 to
March 1998, Mr. Press was Senior Vice President and General Manager of Lexus.
Mr. Press has been employed with TMS, in various positions, since 1970.
-92-
ITEM 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The following table sets forth all compensation awarded to, earned by, or paid
to the Company's Principal Executive Officer and the most highly compensated
executive officers whose salary and bonus for the latest fiscal year exceeded
$100,000, for services rendered in all capacities to the Company for the year
ended March 31, 2002 and the six months ended March 31, 2001 and for the fiscal
years ended September 30, 2000 and 1999.
-93-
Annual Compensation
-----------------------------------------------------
Other Annual All
Name and Compensation Other
Principal Position Period Salary ($) Bonus ($) ($) ($)
- --------------------- ------ ---------- --------- ------------ -------
George Borst 2002 $355,440 $196,330 - $12,959
Chief Executive Officer 2001 $162,870 $170,350 - $ 6,059
Principal Executive 2000 $316,290 $179,200 - $10,300
Officer 1999 $273,400 $162,300 - $ 8,700
Nobukazu Tsurumi 2002 $293,249 $54,121 $45,080 -
Executive 2001 $200,128 $25,588 $18,900 -
Vice President 2000 $247,124 $55,948 $36,060 -
1999 $117,700 $25,300 $23,800 -
Michael Deaderick 2002 $198,525 $ 77,000 - $7,272
Senior 2001 $127,920 $115,660 - $4,661
Vice President 2000 $236,025 $122,740 - $8,600
1999 $215,300 $120,000 - $7,900
David Pelliccioni 2002 $224,312 $ 99,075 - $8,259
Group Vice President
John Stillo 2002 $186,947 $ 56,250 $72,105 $5,834
Chief Financial Officer
- ------------
The amounts in this column represent housing allowances and relocation
costs.
The amounts in this column represent the Company's allocated contribution
under the TMS Savings Plan (the "Plan"), a tax-qualified 401(k) Plan.
Participants in the Plan may elect, subject to applicable law, to contribute up
to 15% of their base compensation on a pre-tax basis to which the Company adds
an amount equal to two-thirds of the first 6% of the employee's contribution.
Participants are vested 25% each year with respect to the Company's
contribution and are fully vested after four years. Subject to the limitations
of the Plan, employee and Company contributions are invested in various
investment options at the discretion of the employee. TMS also maintains a
401(k) Excess Plan, a non-qualified deferred compensation plan which has
similar provisions to the Savings Plan.
Effective January 1, 1999, Mr. Tsurumi was appointed as Group Vice
President and Treasurer. The compensation presented for Mr. Tsurumi for fiscal
year 1999 reflects amounts earned for services to the Company during the
partial period of the fiscal year served.
Effective December 31, 2001, Mr. Deaderick was no longer an employee of
TMCC. The compensation presented for Mr. Deaderick for fiscal year 2002
reflects amounts earned for services to the Company during the partial period
of the fiscal year served.
During the fiscal year 2002, Mr. Pelliccioni was appointed as Group Vice
President and member of the TMCC Board of Directors. The compensation
presented for Mr. Pelliccioni for fiscal 2002 reflects amounts earned for
services to the Company in all capacities for the full fiscal year.
Mr. Stillo joined the Company during fiscal year 2002. The compensation
presented for Mr. Stillo for fiscal year 2002 reflects amounts earned for
services to the Company during the partial period of the fiscal year served.
-94-
Employee Benefit Plan
The following pension plan table presents typical annual retirement benefits
under the TMS Pension Plan for various combinations of compensation and years
of credited service for participants who retire at age 62, assuming no final
average bonus and excluding Social Security offset amounts. The amounts are
subject to Federal statutory limitations governing pension calculations and
benefits.
Annual Benefits for
Final Average Years of Credited Service
Annual ------------------------------------
Compensation 15 20 25
------------- -------- -------- --------
$50,000 $15,000 $20,000 $25,000
$100,000 $30,000 $40,000 $50,000
$150,000 $45,000 $60,000 $75,000
$200,000 $60,000 $80,000 $100,000
$250,000 $75,000 $100,000 $125,000
$300,000 $90,000 $120,000 $150,000
$350,000 $105,000 $140,000 $175,000
$400,000 $120,000 $160,000 $200,000
$450,000 $135,000 $180,000 $225,000
$500,000 $150,000 $200,000 $250,000
$550,000 $165,000 $220,000 $275,000
$600,000 $180,000 $240,000 $300,000
$650,000 $195,000 $260,000 $325,000
$700,000 $210,000 $280,000 $350,000
All full-time employees of the Company are eligible to participate in the TMS
Pension Plan commencing on the first day of the month following hire. Benefits
payable under this non-contributory defined benefit pension plan are based upon
final average compensation, final average bonus and years of credited service.
Final average compensation is defined as the average of the participant's base
rate of pay, plus overtime, during the highest-paid 60 consecutive months prior
to the earlier of termination or normal retirement. Final average bonus is
defined as the highest average of the participant's fiscal year bonus, and
basic seniority-based cash bonus for non-managerial personnel, over a period of
60 consecutive months prior to the earlier of termination or normal retirement.
A participant generally becomes eligible for the normal retirement benefit at
age 62, and may be eligible for early retirement benefits starting at age 55.
The annual normal retirement benefit under the Pension Plan, payable monthly,
is an amount equal to the number of years of credited service (up to 25 years)
multiplied by the sum of (i) 2% of the participant's final average compensation
less 2% of the estimated annual Social Security benefit payable to the
participant at normal retirement and (ii) 1% of the participant's final average
bonus. The normal retirement benefit is subject to reduction for certain
benefits under any union-sponsored retirement plan and benefits attributable to
employer contributions under any defined-contribution retirement plan
maintained by TMS and its subsidiaries or any affiliate that has been merged
into the TMS Pension Plan.
-95-
The TMS Supplemental Executive Retirement Plan (TMS SERP), a non-qualified non-
contributing benefit plan, authorizes a benefit to be paid to eligible
executives, including Mr. Borst, Mr. Deaderick, Mr. Stillo and Mr. Pelliccioni.
Benefits under the TMS SERP, expressed as an annuity payable monthly, are based
on 2% of the executive's compensation recognized under the plan multiplied by
the years of service credited under the plan (up to a maximum of 30), offset by
benefits payable under the TMS Pension Plan and the executive's primary Social
Security benefit. A covered participant's compensation may include base pay
and a percentage (not in excess of 100%) of bonus pay, depending on the
executive's length of service in certain executive positions. Similarly, years
of service credited under the plan are determined by reference, in part, to the
executive's length of service in certain executive positions. No benefit is
payable under the TMS SERP to an executive unless the executive's termination
of employment occurs on a date, after the executive reaches age 55, that is
agreed in writing by the President of TMS and the executive; and the executive
is vested in benefits under the TMS Pension Plan, or unless the executive
accepts an invitation to retire extended by the President of TMS.
Mr. Borst is a participant in the TMS Pension Plan and the TMS SERP, and had
17 years of total credited service as of March 31, 2002. Based upon years of
credited service allocable to TMCC, Mr. Borst may be entitled to receive
approximately $64,652 in annual pension plan benefits when Mr. Borst reaches
age 62. Mr. Borst also may be entitled to receive pension benefits from TMS
based upon services to and compensation by TMS.
Mr. Deaderick is a participant in the TMS Pension Plan and the TMS SERP, and
had reached the maximum total credited service of 25 years under the TMS
Pension Plan and reached 30 years of credited service under the TMS SERP as of
March 31, 2002. Based upon years of credited service allocable to TMCC, Mr.
Deaderick may be entitled to receive approximately $128,242 in annual pension
plan benefits when Mr. Deaderick reaches age 62. Mr. Deaderick also may be
entitled to receive pension benefits from TMS based upon services to and
compensation by TMS.
Mr. Pelliccioni is a participant in the TMS Pension Plan and the TMS SERP, and
had 14 years of total credited service as of March 31, 2002. Based upon years
of credited service allocable to TMCC, Mr. Pelliccioni may be entitled to
receive approximately $15,472 in annual pension plan benefits when Mr.
Pelliccioni reaches age 62. Mr. Pelliccioni also may be entitled to receive
pension benefits from TMS based upon services to and compensated by TMS.
Mr. Stillo is a participant in the TMS Pension Plan and the TMS SERP, and had
less than one year of total credited service as of March 31, 2002. Based upon
years of credited service allocable to TMCC, Mr. Stillo may be entitled to
receive approximately $4,524 in annual pension plan benefits when Mr. Stillo
reaches age 62.
-96-
Toyota Global Incentive Plan
During fiscal year 2002, TMC implemented the Toyota Global Incentive Plan which
granted options to acquire warrants exercisable for 2,000 shares of TMC stock
to 58 global executives of TMC and TMC affiliated companies. Two executives of
TMCC were recipients of the stock options, as presented in the tables below.
OPTION / SAR GRANTS IN LAST FISCAL YEAR
Potential
Realized
Value at
Assumed
Annual
Rates of
Stock Price
Appreciation
Individual Grants for Option Term
- ----------------------------------------------------------------------------------------
% of
Total
Options/
Number of SARs
Securities Granted to Exercise
Underlying Employees or Base
Options/SARs In Fiscal Price Expiration
Name Granted(1) Year(2) ($/Sh)(3) Date 5% ($) 10% ($)
- ----------------------------------------------------------------------------------------
George Borst 2,000 50% $33.68 7/31/2005 $35.36 $37.05
Mike Deaderick 2,000 50% $33.68 7/31/2005 $35.36 $37.05
(1) Pursuant to the Toyota Global Incentive Plan, the Company acquired certain warrants. Each
warrant is exercisable for 100 shares of stock of Toyota Motor Corporation, the Company's
ultimate parent. The Company granted each of the above-named individuals an option to acquire 20
warrants.
(2) The percentages listed above reflect the relative percentages of the total options granted by
the Company. Each of these grants amounted to 1.7% of the total option grants made during the
last fiscal year to Toyota executives worldwide pursuant to the Toyota Global Incentive Plan.
(3) The exercise price per share is equal to Yen 4,203 per share, the closing price of Toyota
Motor Corporation shares on the Tokyo Stock Exchange on August 1, 2001 x 1.025. The exercise
price per share included in the above table was calculated using the exchange rate of $1 =
Yen 124.78 as in effect on August 1, 2001.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End (#)
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized ($) Unexercisable Unexercisable
- -----------------------------------------------------------------------------------------
George Borst None $0 0 Exercisable/ 0 Exercisable/
2,000 Unexercisable 0 Unexercisable
Mike Deaderick None $0 0 Exercisable/ 0 Exercisable/
2,000 Unexercisable 0 Unexercisable
-97-
Compensation of Directors
No amounts are paid to members of the TMCC Board of Directors for their
services as directors.
Compensation Committee Interlocks and Insider Participation
Members of the Executive Committee of the Board of Directors, which consists of
the directors of TMCC other than Mr. Araki and Mr. Ishizaka, participate in
decisions regarding the compensation of the executive officers of the Company.
Certain of the members of the Executive Committee are current or former
executive officers of the Company. Certain of the members of the Executive
Committee are also current executive officers and directors of TFSC and TMS and
its affiliates and participate in compensation decisions for those entities.
-98-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
As of the date hereof, all of TMCC's capital stock is owned by TFSA. As of
March 31, 2002, TMCC's directors and named executive officers, individually and
as a group, owned less then 1% of the total outstanding stock of TMC, the
Company's ultimate parent.
ITEM 13. CERTAIN RELATIONSHIPS AND TRANSACTIONS.
Transactions between the Company, TFSA, TFSC, TMS TMMNA and others are included
in Note 2 - Summary of Significant Accounting Policies, Note 12 - Pension and
Other Benefit Plans, Note 15 - Related Party Transactions, Note 17 - Commitment
and Contingent Liabilities and Note 20 - Subsequent Events of the Notes to the
Consolidated Financial Statements as well as Item 1 and Item 7. Certain
directors and executive officers of TMCC are also directors and executive
officers of TFSA, TFSC, TMS and TMC as described in Item 10.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1)Financial Statements
Included in Part II, Item 8 of this Form 10-K. See Index to
Financial Statements on page 45.
(2)Exhibits
The exhibits listed on the accompanying Exhibit Index, starting on
page 101, are filed as part of, or incorporated by reference into,
this Report.
(b)Reports on Form 8-K
The following reports on Form 8-K were filed by the registrant during
the quarter ended March 31, 2002:
Date of Report Items Reported
----------------- ----------------------
February 8, 2002 Item 5. Other Events
Item 7c. Exhibits
-99-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Torrance,
State of California, on the 30th day of May, 2002.
TOYOTA MOTOR CREDIT CORPORATION
By /s/ George E. Borst
------------------------------
George E. Borst
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on the 30th day of May, 2002.
Signature Title
--------- -----
President and Chief Executive Officer
and Director
/s/ George E. Borst (Principal Executive Officer)
- ------------------------------------
George E. Borst
Executive Vice President and
/s/ Nobukazu Tsurumi Treasurer and Director
- ------------------------------------
Nobukazu Tsurumi
Vice President and
Chief Financial Officer
/s/ John F. Stillo (Principal Financial Officer)
- ------------------------------------
John F. Stillo
Corporate Controller
/s/ Larry Spangler (Principal Accounting Officer)
- ------------------------------------
Larry Spangler
/s/ David Pelliccioni Director
- ------------------------------------
David Pelliccioni
/s/ Yoshimi Inaba Director
- ------------------------------------
Yoshimi Inaba
/s/ James Press Director
- ------------------------------------
James Press
-100-
EXHIBIT INDEX
Method
Exhibit of
Number Description Filing
- ------- ----------- --------
3.1(a) Articles of Incorporation filed with the California
Secretary of State on October 4, 1982. (1)
3.1(b) Certificate of Amendment of Articles of Incorporation
filed with the California Secretary of State on
January 24, 1984. (1)
3.1(c) Certificate of Amendment of Articles of Incorporation
filed with the California Secretary of State on
January 25, 1985. (1)
3.1(d) Certificate of Amendment of Articles of Incorporation
filed with the California Secretary of State on
September 6, 1985. (1)
3.1(e) Certificate of Amendment of Articles of Incorporation
filed with the California Secretary of State on
February 28, 1986. (1)
3.1(f) Certificate of Amendment of Articles of Incorporation
filed with the California Secretary of State on
December 3, 1986. (1)
3.1(g) Certificate of Amendment of Articles of Incorporation
filed with the California Secretary of State on
March 9, 1987. (1)
3.1(h) Certificate of Amendment of Articles of Incorporation
filed with the California Secretary of State on
December 20, 1989. (2)
3.2 Bylaws as amended through December 8, 2000. (6)
4.1 Issuing and Paying Agency Agreement dated August 1,
1990 between TMCC and Bankers Trust Company. (3)
4.2(a) Indenture dated as of August 1, 1991 between TMCC and
The Chase Manhattan Bank, N.A. (4)
- -----------------
(1) Incorporated herein by reference to the same numbered Exhibit filed
with TMCC's Registration Statement on Form S-1, File No. 33-22440.
(2) Incorporated herein by reference to the same numbered Exhibit filed
with TMCC's Report on Form 10-K for the year ended September 30, 1989,
Commission File number 1-9961.
(3) Incorporated herein by reference to Exhibit 4.2 filed with TMCC's
Report on Form 10-K for the year ended September 30, 1990,
Commission File number 1-9961.
(4) Incorporated herein by reference to Exhibit 4.1(a), filed with TMCC's
Registration Statement on Form S-3, File No. 33-52359.
(6) Incorporated herein by reference to the same numbered Exhibit filed
with TMCC's Report on Form 10-Q for the quarter ended December 31, 2000,
Commission File number 1-9961.
-101-
EXHIBIT INDEX
Method
Exhibit of
Number Description Filing
- ------- ----------- ------
4.2(b) First Supplemental Indenture dated as of
October 1, 1991 among TMCC, Bankers Trust Company
and The Chase Manhattan Bank, N.A. (5)
4.3 Third Amended and Restated Agency Agreement dated
October 4, 2000 among TMCC, The Chase Manhattan Bank,
and Chase Manhattan Bank Luxembourg S.A. (24)
4.4 Amendment No.1 dated October 3, 2001 to Third Amended
and Restated Agency Agreement dated October 4, 2000
among TMCC, The Chase Manhattan Bank and Chase Filed
Manhattan Bank Luxembourg S.A. Herewith
4.5 TMCC has outstanding certain long-term debt as set
forth in Note 9 of the Notes to Consolidated Financial
Statements. Not filed herein as an exhibit, pursuant
to Item 601(b) (4)(iii)(A) of Regulation S-K under
the Securities Act of 1933, is any instrument which
defines the rights of holders of such long-term debt,
where the total amount of securities authorized
thereunder does not exceed 10% of the total assets
of TMCC and its subsidiaries on a consolidated
basis. TMCC agrees to furnish copies of all such
instruments to the Securities and Exchange Commission
upon request.
- -----------------
(5) Incorporated herein by reference to Exhibit 4.1 filed with TMCC's
Current Report on Form 8-K dated October 16, 1991, Commission File
No. 1-9961.
(24) Incorporated herein by reference to Exhibit 4.3 filed with TMCC's
Report on Form 10-K for the year ended September 30, 2000, Commission
File No. 1-9961.
-102-
EXHIBIT INDEX
Method
Exhibit of
Number Description Filing
- ------- ----------- ------
10.1 Form of Indemnification Agreement between TMCC and
its directors and officers. (12)
10.2(a) Three-year Credit Agreement (the "Three-year Agreement")
dated as of September 29, 1994 among TMCC, Morgan
Guaranty Trust Company of New York, as agent, and
Bank of America National Trust and Savings Association,
The Bank of Tokyo, Ltd., The Chase Manhattan Bank, N.A.,
Citicorp USA, Inc. and Credit Suisse, as Co-Agents. (13)
10.2(b) Amendment No. 1 dated September 28, 1995 to the
Three-year Agreement. (14)
10.2(c) Amended and Restated Three-Year Credit Agreement dated
September 24, 1996. (16)
10.2(d) Amended and Restated Three-Year Credit Agreement dated
September 23, 1997. (17)
10.5(e) Amendment dated March 19, 1999 to the
Three-year Agreement. (8)
10.5(f) Amended and Restated Three-Year Credit Agreement dated
September 17, 1999. (9)
10.5(g) Fourth Amended and Restated Three-Year Credit Agreement
dated September 14, 2000. (27)
10.5(h) Amendment dated February 19, 2002 to the Three Year Filed
Credit Agreement Herewith
- ----------------
(8) Incorporated herein by reference to Exhibit 10.5(e) filed
with TMCC's Current Report on Form 10-K for the year ended September 30,
1999, Commission File No. 1-9961.
(9) Incorporated herein by reference to Exhibit 10.5(f) filed
with TMCC's Current Report on Form 10-K for the year ended September 30,
1999, Commission File No. 1-9961.
(12) Incorporated herein by reference to Exhibit 10.6 filed with TMCC's
Registration Statement on Form S-1, Commission File No. 33-22440.
(13) Incorporated herein by reference to Exhibit 10.10 filed with TMCC's
Report on Form 10-K for the year ended September 30, 1994,
Commission File No. 1-9961.
(14) Incorporated herein by reference to Exhibit 10.10(a) filed
with TMCC's Report on Form 10-K for the year ended September 30, 1995,
Commission File No. 1-9961.
(16) Incorporated herein by reference to Exhibit 10.9(d) filed with TMCC's
Report on Form 10-K for the year ended September 30, 1996, Commission
File No. 1-9961.
(17) Incorporated herein by reference to Exhibit 10.5(f) filed with TMCC's
Report on Form 10-K for the year ended September 30, 1997, Commission
File No. 1-9961.
(27) Incorporated herein by reference to Exhibit 10.5(g)filed with TMCC's
Report on Form 10-K for the year ended September 30, 2000, Commission
File No. 1-9961.
-103-
EXHIBIT INDEX
Method
Exhibit of
Number Description Filing
- ------- ----------- ------
10.5(i) Fourth Amended and Restated 364-Day Credit Agreement
dated September 17, 1999 among TMCC, Bank of America
N.A. as Administrative Agent, The Chase Manhattan
Bank as Syndication Agent, The Bank of Tokyo-Mitsubishi
Ltd., and Citicorp USA, Inc. as Documentation Agents,
Banc of America Securities LLC as Sole Lead Arranger
and Sole Book Manager and the other Banks named therein. (23)
10.5(j) Fifth Amended and Restated 364-Day Credit Agreement
dated September 14, 2000 among TMCC, Bank of America
N.A. as Administrative Agent, The Chase Manhattan
Bank as Syndication Agent, The Bank of Tokyo-Mitsubishi
Ltd., and Citicorp USA, Inc. as Documentation Agents,
Banc of America Securities LLC as Sole Lead Arranger
and Sole Book Manager and the other Banks named therein. (28)
10.5(k) Sixth Amended and Restated 364-Day Credit Agreement
dated September 13, 2001 ("364 Day Agreement") among TMCC,
Bank of America N.A. as Administrative Agent, The Chase
Manhattan Bank as Syndication Agent, The Bank of
Tokyo-Mitsubishi Ltd., and Citicorp USA, Inc. as
Documentation Agents, Banc of America Securities LLC as
Sole Lead Arranger and Sole Book Manager and the other Filed
Banks named therein. Herewith
10.5(l) Amendment dated February 19, 2002 to the 364-Day Filed
Agreement. Herewith
10.6 Toyota Motor Sales, U.S.A., Inc. Supplemental
Executive Retirement Plan. * (10)
10.7 Toyota Motor Sales, U.S.A., Inc. 401(k)
Excess Plan. * (11)
10.8 Form of Agreement for the Grant of an Option to Acquire
Warrants to Subscribe for Common Stock of Toyota Motor Filed
Corporation. * Herewith
- ----------------
(10) Incorporated herein by reference to Exhibit 10.1 filed with TMCC's
Report on Form 10-Q for the quarter ended December 31, 1995, Commission
File No. 1-9961.
(11) Incorporated herein by reference to Exhibit 10.2 filed with TMCC's
Report on Form 10-Q for the quarter ended December 31, 1995, Commission
File No. 1-9961.
*- Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to applicable rules of the Securities and
Exchange Commission.
(23) Incorporated herein by reference to Exhibit 10.5(g)filed with TMCC's
Report on Form 10-K for the year ended September 30, 1999, Commission
File No. 1-9961.
(28) Incorporated herein by reference to Exhibit 10.5(i)filed with TMCC's
Report on Form 10-K for the year ended September 30, 2000, Commission
File No. 1-9961.
-104-
EXHIBIT INDEX
Method
Exhibit of
Number Description Filing
- ------- ----------- ------
10.9 Amended and Restated Trust and Servicing Agreement
dated as of October 1, 1996 by and among TMCC,
TMTT, Inc., as titling trustee and U.S. Bank National
Association, as trust agent. (18)
10.10 Credit Support Agreement dated July 14, 2000 between
TFSC and TMC. (29)
10.11 Credit Support Agreement dated October 1, 2000 between
TMCC and TFSC. (30)
10.12 Amended and Restated Repurchase Agreement dated
effective as of October 1, 2000, between TMCC and TMS (33)
10.13 Shared Services Agreement dated October 1, 2000
between TMCC and TMS. (32)
10.14 Credit Support Fee Agreement dated March 30, 2001
between TMCC and TFSC (34)
12.1 Calculation of ratio of earnings to fixed charges. Filed
Herewith
21.1 TMCC's list of subsidiaries. Filed
Herewith
23.1 Consent of Independent Accountants. Filed
Herewith
- ----------------
(18) Incorporated herein by reference to Exhibit 4.1 filed with Toyota Auto
Lease Trust 1997-A's Report on Form 8-A dated December 23, 1997,
Commission File No. 333-26717
(29) Incorporated herein by reference to Exhibit 10.9 filed with TMCC's Report
on Form 10-K for the year ended September 30, 2000, Commission File
No. 1-9961.
(30) Incorporated herein by reference to Exhibit 10.10 filed with TMCC's
Report on Form 10-K for the year ended September 30, 2000, Commission
File No. 1-9961.
(32) Incorporated herein by reference to Exhibit 10.12 filed with TMCC's
Report on Form 10-K for the year ended September 30, 2000, Commission
File No. 1-9961.
(33) Incorporated herein by reference to Exhibit 10.11 filed with TMCC's
Report on Form 10-K for the fiscal year ended March 31, 2001, Commission
File No. 1-9961.
(34) Incorporated herein by reference to Exhibit 10.13 filed with TMCC's
Report on Form 10-K for the fiscal year ended March 31, 2001, Commission
File No. 1-9961.
-105-